Why add international stocks?
However, non-U.S. stocks may be attractive due to lower valuations, higher dividend yields and growth potential in select regions. Investors should consider such investments as an inexpensive way to hedge portfolios against a potential U.S. stock-market pullback.
International shares can be a good investment as they offer diversification benefits, growth potential, and exposure to global economic trends. However, they also come with risks, such as currency fluctuations and geopolitical uncertainties, so it's essential to research and consider these factors before investing.
This market allows companies to raise a larger amount of capital than a single market and investors to hold stocks in a number of different countries simultaneously.
One of the primary reasons for foreign investment is to generate revenue. Foreign investment can provide businesses with new revenue streams and opportunities for growth. By investing in foreign countries, companies can tap into new markets, expand their customer base, and increase sales and profits.
Some of the most common reasons behind a move to internationalisation and expansion into foreign markets include: extending the life cycle of a product or technology. reducing business costs by outsourcing larger-scale production at lower costs, for example in developing countries (driving economies of scale)
Markets outside the United States don't always rise and fall at the same time as the domestic market, so owning pieces of both international and domestic securities can level out some of the volatility in your portfolio. This can spread out your portfolio's risk more than if you owned just domestic securities.
Key Takeaways
Home-country bias leads investors to favor domestic securities despite potential global opportunities. U.S. stocks accounted for 44.9% of the global equity market capitalization in 2023. International stocks offer diversification, exposure to global growth and industry representation.
Start by allocating 15% to 20% of your equity portfolio to foreign stocks. That's the percentage I typically maintain in the Vanguard portfolios. It's meaningful enough to make a difference in your overall returns, but not so much that it will ruin your portfolio when foreign markets temporarily fall out of favor.
However, unlike domestic stock funds, which invest primarily in US companies, international stock funds primarily invest in companies outside of the US.
International Equity Market Definition
This exchange is one of the most essential areas of an international economy. It gives access to the capital and ownership of a company that may produce profits based on its predicted performance.
How to trade international stocks?
Opening an Overseas Trading Account with a Foreign Broker
You can also open an overseas trading account directly with a foreign broker with a presence in India. Some such brokerages are Charles Schwab, Ameritrade, Interactive Brokers, etc. Ensure that you understand the fees and charges before opening the account.
When Americans buy stocks or bonds from foreign-based companies, any investment income (interest, dividends) and capital gains are subject to U.S. income tax and taxes levied by the company's home country.
If you own a high-turnover foreign-stock fund, for example, that will be a bad bet for a taxable account no matter what. That's because capital gains on sales of foreign securities are paid to the US government and not the foreign government, so the foreign tax credit/deduction would not apply.
The main reasons to invest internationally are to capture higher expected returns and to diversify portfolios across a broader array of asset classes. This can lower the overall volatility of a portfolio and increase the likelihood of benefiting from the return premiums associated with different risk factors.
So, we maintain that most investors should probably have some type of exposure to non-U.S. stocks. We consider foreign large-blend funds to be core holdings that could make up as much as 40% to 80% of a portfolio's assets, although most investors will probably want to keep their exposure on the lower end of that range.
| Company Name | Ticker | Sector |
|---|---|---|
| Nestle | NSRGY | Consumer Defensive |
| Reckitt Benckiser Group | RBGLY | Consumer Defensive |
| Unilever | UL | Consumer Defensive |
| Royal Bank of Canada | RY | Financial Services |
By definition, international funds invest in non-U.S. markets, while global funds may invest in U.S. stocks alongside non-U.S. stocks.
Think long term. 2024 may be a good time to look for bargains in international stocks that have the long-term potential to deliver higher returns than US stocks. Fidelity's Asset Allocation Research Team (AART) forecasts that international stocks will outperform US stocks over the next 20 years.
ETFs and mutual funds
One of the easiest ways to invest in a broad swath of international companies across countries and sectors is through an exchange-traded fund (ETF) or a mutual fund.
The research by three U.S. finance professors led by University of Arizona professor Scott Cederberg comes to the surprising conclusion that a portfolio holding 100% stocks and no bonds is best, even for people already in retirement.
What is the proper international stock allocation?
My main purpose of this post is to get an idea of what percentage others allocate to International Stocks. I read a Vanguard article that recommended at least 20% of the equity portion in international, and as high as 40%. Based on the 120 minus age rule, our equity should be 65%.
Investing in international markets exposes you to political and economic risks in different countries. Factors such as government instability, regulatory changes, or economic downturns can impact the performance of international mutual funds. International markets can be more volatile than domestic markets.
F-shares are five letter stock symbols ending in “F” that represent an equity traded on a foreign exchange. In some instances, the foreign ordinary shares may be tradable in the U.S. Over-the-Counter market (OTC) through a market maker.
International outperformance in 2023
Should the U.S.'s mega-cap seven stocks lag, a possibility without aggressive Fed rates cuts in 2024 to sustain their momentum, the outperformance by the average international stock since the bear market ended in October 2022 may become more obvious.
- Higher Transaction Costs. The biggest barrier to investing in international markets is the added transaction cost. ...
- Currency Volatility. ...
- Liquidity Risks.
