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To diversify across countries, decide your overall stock-and-bond mix first, then add broad exposure to markets outside your home country. To diversify across currencies, understand whether those investments are unhedged or use currency hedging. Neither approach guarantees gains or prevents losses, and there is no single international allocation that suits every investor.
Start with your overall portfolio mix
Choose the balance of stocks, bonds, and cash before selecting countries. The right mix depends on your goal, the time available to reach it, and both your willingness and ability to tolerate losses. A longer time horizon may allow you to accept more volatility; money needed soon may call for less. Investor.gov explains these considerations in its asset allocation and diversification guide.
Geographic diversification is one part of that allocation. It spreads investments among markets that can have different economic conditions and return patterns. Markets can still fall together, especially in a globally connected economy, so holding investments in more countries does not eliminate risk.
Choose broad exposure beyond your home market
For U.S. investors, possible routes include U.S.-registered international mutual funds and ETFs, international index funds, American depositary receipts (ADRs), U.S.-traded foreign stocks, and direct investment in foreign markets. A global fund may hold U.S. as well as international companies; an international fund generally excludes U.S. companies. Read the fund’s mandate and holdings rather than relying on its name.
A broad fund can hold many investments through a single security, but a regional or single-country fund is narrower and does not by itself create broad diversification. Check the largest holdings, country and sector weights, and overlap with funds you already own. ETFs trade during the day at market prices; mutual funds generally transact at the fund’s calculated price. Investor.gov’s overview of mutual funds and ETFs explains these structures.
Direct foreign-market investing may require relying on information outside U.S. SEC filings. Market operations, liquidity, costs, and legal remedies can differ from those familiar to a U.S. investor. The SEC’s international investing overview describes these risks and access routes.
Understand how currency changes affect returns
An unhedged foreign investment exposes you to both the local asset’s performance and exchange-rate movements. For a U.S. investor, if the dollar strengthens against the investment’s currency, the foreign asset translates into fewer dollars; if that currency strengthens, conversion can add to the dollar return. Investor.gov puts it plainly: “When the exchange rate between the U.S. dollar and the currency of an international investment changes, it can increase or reduce your investment return.”
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Fix the driver behind crashes, sound loss and screen glitchesFind Drivers →Repair Windows errors before they cause bigger problemsFix Now →Currency hedging aims to reduce some exchange-rate effects. A fund may be unhedged, partially hedged, or hedged to a particular currency; inspect its prospectus and share-class details to find out which. Hedging does not remove every risk or guarantee a better result. Vanguard suggests considering dollar-hedged international bonds because bonds may be more affected by currency risk than stocks. That is Vanguard’s view, not a universal rule or a prescribed hedge ratio.
Compare investments on the same criteria
Before adding an international holding, compare its role and risks with your existing portfolio. Consider:
- Geographic breadth: global, all non-domestic markets, developed markets, emerging markets, a region, or one country.
- Asset class and purpose: stocks or bonds, and the share of your overall allocation the investment is intended to fill.
- Currency treatment: unhedged, partly hedged, or hedged to a named currency.
- Concentration and overlap: countries, sectors, largest holdings, and duplication with domestic or global funds you already own.
- Costs and trading: fund expenses, commissions, currency conversion, taxes or withholding, liquidity, and trading hours where applicable.
- Access and protections: fund domicile, registration, broker or adviser status, disclosures, and the legal remedies available in your jurisdiction.
International investments can carry higher transaction costs and unexpected taxes in some countries. Currency controls, political or economic events, differences in available information and market operations, and lower liquidity can also affect outcomes. Emerging markets may have especially elevated political, economic, and currency risks. Available protections depend on where you live and where the investment is held.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.Set an international allocation that fits your plan
There is no regulator-set percentage that every investor should hold internationally. Vanguard recommends at least 20% international exposure in both stocks and bonds. For investors seeking what it calls the “full diversification benefits,” Vanguard says they could consider about 40% of their stock allocation in international stocks and about 30% of their bond allocation in international bonds. These are Vanguard’s provider recommendations, not universal targets or personalized advice; your goals, time horizon, risk tolerance, and existing holdings matter.
Historical results are not a reliable way to choose a permanent target. In a Vanguard illustration using relevant MSCI indexes and historical stock data from Bloomberg, $100 invested in U.S. stocks grew to $334, while $100 invested in non-U.S. stocks grew to $160 over the 10 years ended December 31, 2024. These are hypothetical index-based historical balances, not investable results or forecasts. The decade’s U.S. outperformance does not establish which market will lead next; past performance does not guarantee future results.
Rebalance when the portfolio drifts
Market movements can cause a region or asset class to become a larger or smaller share of your portfolio than intended. Investor.gov describes two common rebalancing approaches: review on a regular interval, such as every six or 12 months, or rebalance when an allocation moves beyond a threshold you set. It says rebalancing generally works best relatively infrequently. Those intervals are examples, not a requirement. Taxes, transaction costs, account type, and new contributions can affect whether and how you rebalance.
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