Why International Diversification Matters for U.S. Investors

August 26, 2025

If you are like many U.S. investors, your portfolio is probably heavily tilted toward domestic stocks and bonds. That feels natural because the U.S. market is familiar, highly liquid, and home to companies you know well. But focusing only on U.S. assets means you are tied to a single economy and a single currency. To build a stronger, more balanced portfolio, you should consider what international diversification can bring.

Michael Landsberg, Chief Investment Officer at Landsberg Bennett Private Wealth Management, explained in a June 11, 2025 discussion with Reuters that European stocks are one area where investors should be paying attention. He pointed out that in the past three years, countries such as Austria, Poland, Switzerland, Germany, and Italy have outperformed the S&P 500, yet U.S. portfolios remain heavily concentrated in domestic giants like the “Magnificent Seven.” He added:

It makes a lot of sense to allocate money to those places. And part of it’s been because they had a recession and they’ve kind of been coming out of that. But also, you’re starting to see, at least this year, an acceleration in defense spending, an acceleration where I think Europe oftentimes realizes the United States isn’t going to be there, at least during this administration, to give them lots of money, and they may have to be paying some of their own way. And that’s actually led to a lot of outperformance in some defense and industrial sectors in Germany and in other places. So, we continue to think that’s a great spot to be primarily because most U.S. investors aren’t there.”

For Landsberg, the point isn’t just about chasing performance. It’s about reducing volatility by not relying on one market. As he put it, “at the end of the day your goal is to get a good return. But if I can do so with less volatility because I’ve got some other areas of the world giving me returns, I think that’s a positive for investors.”

Read: Why Is Diversification Crucial for High-Net-Worth Portfolios?

Why diversify internationally?

The U.S. accounts for a large share of global market capitalization, but it is not the entire picture. More than 40 percent of investable opportunities exist outside American borders, and many of those are concentrated in regions that are moving on very different cycles compared with the U.S. economy. By limiting yourself to domestic assets, you cut yourself off from growth drivers in markets that may be expanding faster or benefiting from conditions that look nothing like those in the U.S.

When you broaden your reach globally, you are not just adding new holdings. You are tapping into growth stories that give your portfolio balance and exposure to sectors that may not be well represented domestically.

Regional opportunities to consider

When you step outside the U.S., you’ll find that growth opportunities vary by region. Each market has its own drivers, risks, and cycles. By understanding where those differences lie, you can make international diversification work in your favor.

Asia-Pacific

• China: Government-backed spending is reshaping entire industries. Renewable energy, semiconductors, and electric vehicles are priority areas where both policy and private capital are flowing.
  
  
• India: With a young population and a rising middle class, India’s growth is fueled by domestic consumption and technology services. Its demographics suggest decades of expansion in financial services, consumer goods, and infrastructure.
  
  
• Southeast Asia: Countries such as Vietnam, Indonesia, and Thailand are becoming central to supply chain diversification. As firms reduce reliance on China, manufacturing and infrastructure in these markets are benefiting. Rising consumer demand adds another layer of opportunity.
  
  
• Japan: Corporate reforms are driving companies to increase dividends and buy back shares. A weaker yen has also made Japanese exporters more competitive, supporting growth in global markets.

Latin America

• Brazil: Rich in natural resources, Brazil gives you direct exposure to global commodity cycles in energy, metals, and agriculture. Its role as a supplier to both developed and emerging economies makes it an important piece of international bond investing and equity diversification.
  
  
• Mexico: Proximity to the U.S. and strong manufacturing capacity position Mexico well in supply chain realignment. Nearshoring trends are boosting its role in global trade.

Europe

• European markets provide stability through established financial systems and access to multinational companies with global reach.
  
  
• Many European firms prioritize dividend distributions, offering consistent income alongside exposure to defense, industrials, and global consumer sectors.

Middle East

• Gulf states such as Saudi Arabia, the UAE, and Qatar are channeling sovereign wealth into infrastructure, finance, and energy diversification.
  
  
• These economies add a commodity and infrastructure component to your portfolio, which can serve as a hedge when resource prices rise.

Africa

• Frontier markets such as South Africa, Nigeria, and Kenya provide exposure to telecommunications, banking, and natural resources.
  
  
• While volatility is higher, population growth and urbanization create long-term demand drivers that U.S. markets cannot replicate.

Australia and New Zealand

• Both markets are known for resource-driven economies, offering exposure to commodities like iron ore, coal, and natural gas.
  
  
• Stable financial systems and a focus on dividend-paying companies make them reliable components of global equity diversification.

Source: Kearney as of June 2025

What this means for you

By diversifying internationally, you are not just spreading risk. You are capturing opportunities that complement your U.S. holdings:

• Global equity diversification connects you to growth sectors abroad that may not exist at scale in the U.S.
  
  
• International bond investing provides income from governments and corporations outside the dollar system.
  
  
• Emerging markets diversification allows you to participate in higher growth economies such as India, Brazil, or Southeast Asia, balancing slower U.S. growth.

The goal is not about abandoning U.S. investments. It is about creating a portfolio that reflects the real breadth of the global economy. By staying only within U.S. borders, you tie yourself to a single cycle. Allocating a portion of your assets abroad helps ensure that when other regions are expanding, your portfolio participates.

Potential Benefits of Diversifying Internationally

When you diversify internationally, you are broadening your reach beyond the U.S. economy. This isn’t just about spreading money across borders. It’s about tapping into growth cycles, income streams, and risk reduction strategies that complement your U.S. holdings.

Access to Growth Beyond the U.S.

Different regions give you different strengths, and those strengths don’t always move in sync with the U.S. economy.

• Asia-Pacific:
  
  
  • China remains a global manufacturing hub while expanding leadership in renewable energy and electric vehicles. Government incentives in clean energy and technology continue to create opportunities that aren’t available in U.S. markets at the same scale.
    
    
  • India is experiencing one of the strongest demographic shifts in the world. With a young workforce and a growing middle class, demand for consumer goods, housing, and financial services is accelerating. For long-term investors, this creates a steady growth channel.
    
    
• Latin America:
  
  
  • Brazil benefits directly from global demand for commodities like iron ore, soybeans, and crude oil. Exposure here gives you a hedge against cycles where resource demand is rising.
    
    
  • Mexico is well-positioned as U.S. firms move production closer to home. Its role in global manufacturing supply chains continues to expand, creating opportunities in industrial and financial sectors.
    
    
• Europe:
  
  
  • While economic growth is slower compared to emerging markets, Europe provides stability and access to large multinational firms. Many European companies have strong dividend policies, which means you’re not only gaining exposure to global industries but also consistent income.

When you add international stocks, you’re not replacing U.S. equities. You’re adding complementary drivers that can give your portfolio balance. This is at the core of global equity diversification.

Portfolio Risk Reduction

One of the most practical benefits of international diversification is that global markets don’t move in lockstep.

• When U.S. equities experience volatility, other regions may offset those swings. For example, a weakening dollar often benefits exporters in Europe and Japan, boosting their earnings and stock prices.
  
  
• Different economies operate under different cycles. Latin America may be rising with commodity demand while Europe benefits from industrial expansion. By holding both, you’re lowering the chance that your entire portfolio is dragged by a single downturn.
  
  
• Correlation data shows that adding even 15 to 20 percent of international equities to a U.S.-focused portfolio can reduce volatility over long time horizons.

By spreading your investments globally, you’re managing risk through diversification that goes beyond simply owning more sectors within the U.S.

Opportunities Across Asset Classes

International diversification doesn’t stop at equities. You can strengthen your portfolio by looking across bonds and alternatives as well.

• Bonds:
  
  
  • Sovereign bonds from stable economies like Germany or Australia can provide reliable income and act as ballast when equity markets face pressure.
    
    
  • Emerging market debt from countries such as Mexico or Indonesia offers higher yields, though with more volatility, giving you a chance to balance income and growth.
    
    
• Alternatives:
  
  
  • International real estate investment trusts (REITs) give you exposure to commercial and residential property markets abroad.
    
    
  • Infrastructure funds focused on Asia and Latin America allow you to participate in projects tied to energy, transportation, and technology build-out.
    
    
  • Global private equity, often accessible through U.S.-based vehicles, provides exposure to privately held companies abroad that aren’t available on stock exchanges.

These asset classes help you go beyond stocks and build a portfolio that captures multiple sources of return.

Inflation Protection and Income

Global investments can help you manage inflation and generate steady income.

• Resource-driven economies like Brazil, Chile, and South Africa tend to perform better when commodity prices rise. This gives you natural inflation protection.
  
  
• Dividend-focused markets in Europe and Australia give you consistent income streams. European firms, in particular, often distribute a higher portion of earnings as dividends compared with U.S. companies.
  
  
• By combining both, you’re building a portfolio that has protection against rising costs while also providing cash flow.

Currency Diversification

When you invest abroad, you’re gaining exposure to other currencies.

• If the dollar weakens, your holdings in euros, yen, or emerging market currencies can gain value when converted back.
  
  
• Currency diversification reduces the risk of being tied solely to dollar performance.
  
  
• For U.S. investors who live and spend in dollars, this type of diversification provides balance without requiring you to manage foreign exchange directly.

Currency exposure is often overlooked, but it plays a meaningful role in long-term portfolio balance.

Access to Different Sectors and Industries

Some industries are stronger abroad than they are in the U.S.

• Luxury goods and consumer brands thrive in Europe, with companies that focus on high-end goods dominating globally.
  
  
• Semiconductors and electronics are centered in Asia, particularly in Taiwan and South Korea.
  
  
• Natural resources and mining play a bigger role in Australia and Latin America.

By diversifying globally, you’re filling in gaps that U.S. markets alone can’t give you.

Demographic Exposure

Population trends shape economic growth, and many of the strongest demographic shifts are happening outside the U.S.

• India and Indonesia have large, young populations that will fuel consumption for decades.
  
  
• Africa has the fastest-growing population in the world, creating long-term demand for financial services, telecommunications, and infrastructure.
  
  
• These demographics are in contrast to aging populations in developed markets, giving you exposure to different consumption patterns.
  
  

If you want a portfolio that benefits from tomorrow’s growth, demographics abroad can’t be ignored.

Policy and Structural Reforms

Reforms in certain markets create new opportunities for investors.

• Japan has been encouraging companies to improve shareholder value through higher dividends and stock buybacks. This reform has made Japanese equities more appealing to global investors.
  
  
• Latin America has seen progress in financial reforms and fiscal discipline in some economies, which improves stability for bondholders and equity investors alike.

When countries adopt reforms, it often reshapes the way their markets behave, creating opportunities that weren’t there before.

Potential Tax Efficiency

International investing comes with tax complexity, but it can also offer opportunities.

• Some funds are structured to help U.S. investors reclaim or offset foreign withholding taxes.
  
  
• Tax treaties between the U.S. and other nations can reduce the drag on dividends from international holdings.
  
  
• For taxable accounts, carefully selected funds may enhance after-tax returns compared with holding the same securities directly.

This isn’t a one-size-fits-all benefit, but with the right planning, you can improve efficiency while staying globally diversified.

Smoother Long-Term Returns Through Global Cycles

Economic cycles rarely line up across regions.

• Europe may be in recovery while the U.S. slows down.
  
  
• Emerging markets may expand rapidly while developed markets move sideways.
  
  
• By participating in global cycles, your portfolio captures growth even when one region stalls.

Global rotation of growth helps you smooth long-term returns. Rather than being dependent on the U.S. cycle, you’re tied to the global economy, which broadens your opportunities.

Potential Risks of International Investing

International diversification can strengthen your portfolio, but it comes with risks that you need to understand and manage. Being aware of these risks helps you make smarter allocation decisions.

Currency Risk

When you invest internationally, your returns are tied to two forces: the performance of the asset itself and the movement of the local currency against the dollar. This dual exposure creates scenarios you might not experience when investing solely in U.S. markets.

• Example of downside: If you buy European equities and the euro weakens against the dollar, your gains shrink when converted back, even if the company’s share price increased overseas.
  
  
• Example of upside: If the dollar weakens against the euro, your returns are amplified once converted back to dollars.

This currency exposure can be both an opportunity and a risk. You’re essentially holding a second layer of investment — the underlying asset and the currency it’s denominated in.

Ways you can manage this risk include:

• Currency-hedged ETFs: These funds are designed to reduce the effect of currency swings. For example, a euro-hedged ETF aims to isolate the performance of the stocks themselves rather than exposing you to euro fluctuations.
  
  
• Diversifying currency exposure: Holding assets across different currencies — euros, yen, pounds, or emerging market currencies — spreads your risk instead of tying returns to one exchange rate.
  
  
• Strategic use of unhedged positions: If you believe the dollar is entering a weaker cycle, you might choose unhedged funds to benefit from currency appreciation abroad.

Currency risk doesn’t mean you should avoid international investing. It means you should understand how it impacts your portfolio and make intentional choices about whether to hedge, diversify, or accept the exposure.

Geopolitical and Regulatory Risks

When you put money into international markets, you’re stepping into environments shaped by political decisions and regulatory frameworks that are different from what you’re used to in the U.S. These risks don’t always show up in stock prices right away, but they can quickly influence returns if you’re not prepared.

• U.S. and China tensions: Trade disputes and technology restrictions are a constant risk factor. Tariffs, sanctions, and export controls on areas such as semiconductors or telecommunications can reduce growth prospects for companies in both countries. If you hold shares of a Chinese technology firm, you’re exposed to policy changes that can alter its access to global supply chains overnight.
  
  
• Europe’s regulatory environment: Europe often enforces stricter rules around data privacy, taxation, and labor than the U.S. Companies operating in the European Union must comply with the General Data Protection Regulation (GDPR), which adds costs and compliance challenges. These rules may benefit consumers, but for you as an investor, they can weigh on profit margins and affect valuations.
  
  
• Latin America’s political cycles: Countries like Brazil and Mexico have strong economic potential but also experience shifts in fiscal and social policy whenever leadership changes. An unexpected election outcome or policy reversal can trigger currency volatility and capital flight. Argentina’s history of debt defaults is another example of how political choices can spill directly into bond and equity markets.
  
  
• Middle East and emerging regions: Geopolitical conflicts and sudden regulatory changes in energy-rich nations can create swings in commodity markets. For instance, policy changes on oil production quotas can impact both equity and bond investors tied to those economies.

You can’t avoid these risks entirely, but you can prepare for them. The key is to recognize that each region carries its own political and regulatory profile. When you allocate money internationally, you’re not just buying into a company or a fund. You’re also buying into the political environment and regulatory framework that shapes how those businesses operate.

Market Structure and Liquidity Risk

Not every market operates with the same depth, transparency, or access that you find in the U.S. This means you need to be mindful of how market structure and liquidity can influence your international investments.

• Restrictions on foreign ownership: Countries such as China and India often limit how much of a company foreign investors can own. These restrictions can affect both the availability of shares and the potential for foreign investors to influence corporate decisions. In practice, this means you might only be able to access certain companies through specific share classes designed for non-residents.
  
  
• Capital controls: Some governments impose restrictions on how money flows in and out of their markets. For example, India maintains certain rules on capital repatriation, and China has historically placed limits on cross-border money movement. These controls can create delays or extra costs if you need to liquidate investments and bring capital back into dollars.
  
  
• Liquidity concerns: Smaller exchanges and emerging markets often lack the trading volume you see in New York or London. Lower liquidity makes it harder to buy or sell positions quickly without affecting the price. For instance, a mid-cap stock in Southeast Asia may look attractive on paper, but if only a small number of shares trade daily, you could struggle to exit your position at a fair value.
  
  
• American Depositary Receipts (ADRs): One way you can manage liquidity and market access is by using ADRs. These securities are listed on U.S. exchanges but represent shares of foreign companies. With ADRs, you can gain exposure to international firms while trading in dollars under U.S. market rules. While not all foreign stocks are available as ADRs, they remain a practical option for reducing both access and liquidity challenges.

When you put money into foreign markets, you’re not only betting on the company. You’re also dealing with the rules, restrictions, and liquidity conditions of that country. If you don’t account for those differences, you may find that your ability to move in or out of positions is more limited than you expected.

Tax Considerations

When you invest internationally, the return you see on paper is not always the return you keep after taxes. Unlike domestic investing, where tax treatment is more predictable, international holdings come with rules that vary from country to country.

• Dividend withholding taxes: Many countries automatically withhold a portion of dividends before you even receive them. Rates typically range from 15 to 30 percent, depending on the jurisdiction. For example, if a European company declares a dividend of $1.00 per share, you may only receive $0.70 to $0.85 after the foreign government takes its portion.
  
  
• Tax treaties: The U.S. has agreements with certain countries that allow you to claim a credit for some or all of the withholding tax. This can offset the double taxation effect when you report income to the IRS. For instance, if France withholds 30 percent on dividends, the U.S.–France treaty may allow you to claim part of that back as a credit. The rules can be technical, and the credit does not always fully eliminate the withholding.
  
  
• Fund structures and efficiency: If you invest through international ETFs or mutual funds, many of the filing and recovery processes are handled within the fund. That doesn’t eliminate the tax impact, but it does reduce the administrative burden on you. You still need to understand how these vehicles are structured, since not all funds manage foreign tax credits equally.
  
  
• Impact on after-tax returns: Even when credits are available, the timing of when you can claim them matters. For taxable accounts, the lag between withholding and recovery can drag on your effective yield. This is especially important when you’re relying on dividends or bond income as part of your cash flow strategy.
  
  
• Capital gains treatment: Selling international securities may trigger different reporting requirements, especially if you hold positions directly on foreign exchanges. For U.S. investors, using ADRs or U.S.-listed funds simplifies this, since they fall under U.S. capital gains rules.

The bottom line is that taxes can reduce the benefit of international investing if you don’t account for them upfront. When you evaluate global equity diversification or international bond investing, you’re not just comparing gross yields — you’re comparing after-tax outcomes.

How to Diversify Internationally

U.S.-Friendly Investment Vehicles

You don’t need to open a brokerage account overseas or trade on foreign exchanges to diversify internationally. As a U.S. investor, you already have access to multiple vehicles that give you global exposure while letting you stay within the U.S. market system.

• Broad-based ETFs: Funds that track indexes such as the MSCI ACWI ex-U.S. or the FTSE All-World ex-U.S. provide immediate exposure to international equities. These ETFs hold thousands of stocks across developed and emerging markets, allowing you to capture global equity diversification in a single trade. They are often the simplest entry point if you want wide exposure without choosing regions individually.
  
  
• Region-specific funds: If you want to emphasize particular parts of the world, you can use funds that target regions such as Asia-Pacific, Europe, or Latin America. For example, an Asia-Pacific ETF may focus on countries like Japan, China, India, and Australia, giving you a concentrated position in markets with faster growth cycles compared to the U.S.
  
  
• Country-specific funds: If you believe in the growth trajectory of a single market, country ETFs can give you direct exposure. For instance, an India ETF or a Brazil ETF allows you to tap into consumer demand or resource exports tied specifically to that economy.
  
  
• Global mutual funds: Managed by U.S.-based firms, these funds give you exposure to international companies with active oversight. Portfolio managers make allocation choices based on their analysis of global opportunities. While they may come with higher fees compared to ETFs, they can provide you with curated exposure to certain sectors or markets.
  
  
• ADRs (American Depositary Receipts): If you prefer individual stocks, ADRs give you a way to own foreign companies while trading in dollars on U.S. exchanges. This means you can buy shares of firms like Nestlé, Toyota, or Samsung without dealing directly with local market rules or currencies. ADRs provide access to single-company exposure while staying under U.S. market regulations.

Each of these vehicles serves a different purpose. ETFs are efficient for broad or regional exposure, mutual funds give you professional management with more discretion, and ADRs let you pick specific companies abroad. By combining these tools, you can build international exposure that matches your goals without leaving the U.S. brokerage system.

Regional Allocation Strategies

When you diversify internationally, you need to think about not just how much exposure you want overall, but also how you split that exposure across regions. Different areas of the world carry different risk and return profiles, and striking the right balance can improve both stability and growth in your portfolio.

• Developed markets:
  
  
  • Europe: Offers stability through established financial systems and multinational companies. European equities also tend to provide consistent dividends, which can serve as an income source. Growth may be slower compared with emerging markets, but the lower volatility helps smooth portfolio performance. Michael Landsberg of Landsberg Bennett Private Wealth Management noted in a May 12, 2025 discussion with Reuters that Europe “has been an area that we like. We think it continues to do well,” highlighting the region as a part of the market that continues to work even in periods of uncertainty.
    
    
  • Japan: Corporate reforms have been pushing firms toward better shareholder returns through dividends and stock buybacks. A weaker yen has also improved export competitiveness, giving investors another dimension of exposure.
    
    
  • Australia: As a resource-driven economy, Australia gives you exposure to global demand for iron ore, coal, and natural gas. It also has well-developed financial markets and companies with reliable dividend policies.
    
    

• Emerging markets:
  
  
  • China: Despite regulatory challenges, China remains a central player in manufacturing and is heavily investing in renewable energy, electric vehicles, and technology. Exposure here can give you access to sectors that are expanding at a scale that could not be matched by developed markets.
    
    
  • India: A young population, expanding middle class, and rising domestic consumption make India a long-term growth opportunity. Technology services, infrastructure, and consumer goods are sectors that continue to expand year after year.
    
    
  • Brazil: Provides direct exposure to global commodity demand. Whether it’s soybeans, oil, or metals, Brazil is positioned as a supplier to both developed and emerging economies.
    
    
  • Mexico: Plays a growing role in global supply chains as companies diversify manufacturing away from Asia. Its proximity to the U.S. makes it especially relevant for U.S. investors looking to benefit from nearshoring trends.

How you balance these regions matters.

• If you want stability and income, a heavier allocation toward developed markets like Europe, Japan, and Australia makes sense.
  
  
• If you’re looking for higher growth potential, emerging markets such as China, India, and Brazil can provide that, though they come with greater volatility.
  
  
• Many U.S. investors start by allocating two-thirds to developed markets and one-third to emerging markets within their international sleeve. From there, you can adjust based on your risk tolerance, time horizon, and income needs.

By blending developed and emerging markets, you’re not relying on one type of economy. You’re giving yourself access to stability on one side and growth potential on the other, which helps balance out the risk-return tradeoff in global equity diversification.

Balancing Across Asset Classes

A global allocation should never stop at equities. When you look beyond stocks, you find opportunities in bonds and alternatives that can strengthen your portfolio by giving you income, stability, and exposure to different sectors of the global economy.

• Government bonds: Developed markets such as Germany, Japan, and Australia issue sovereign bonds that can provide reliable income and act as a stabilizer during periods of equity volatility. These bonds are often used as a safe anchor within an international allocation.
  
  
• Corporate bonds: Companies in emerging markets issue debt that typically comes with higher yields compared to developed market bonds. For example, bonds from corporations in Brazil or Indonesia can enhance income, though you should be prepared for greater swings in value and credit risk. Allocating a measured percentage of your bond sleeve to emerging markets can improve yield while keeping most of your exposure in more stable economies.
  
  
• Alternatives:
  
  
  • Infrastructure funds give you access to large-scale projects abroad, such as energy pipelines, transportation networks, and digital infrastructure in Asia and Latin America. These investments are often tied to long-term demand and can provide steady cash flows.
    
    
  • Real estate investment trusts (REITs) outside the U.S. allow you to participate in property markets that behave differently than American housing and commercial real estate cycles. European REITs, for instance, may offer income stability, while Asian REITs provide growth exposure in rapidly urbanizing regions.
    
    
  • Private equity and private credit vehicles can offer exposure to companies abroad before they go public or to non-traditional lending opportunities. While less liquid, these allocations can diversify return streams further.

When you blend equities with international bonds and alternatives, you’re building a portfolio that has multiple return drivers. Stocks abroad give you growth, government bonds add stability, corporate bonds supply income with risk, and alternatives provide exposure to sectors that aren’t always available in U.S. markets. This balance helps ensure that your international allocation is not overly dependent on a single asset class.

Hedging and Risk Management

When you put money into international markets, risk management becomes even more important. You’re not only managing the normal ups and downs of equities and bonds, you’re also exposed to currencies, regulations, and market structures that behave differently than what you’re used to at home. Building a plan to manage those risks can help protect your portfolio from unwanted surprises.

• Currency-hedged funds: Exchange rate movements can either boost or drag on your returns. If the dollar strengthens, your international positions lose value once converted back. Currency-hedged ETFs and mutual funds are designed to reduce this exposure. For example, if you want European equity exposure but don’t want euro-dollar swings affecting your outcome, you can use a euro-hedged ETF to isolate company performance. On the other hand, if you believe the dollar is entering a weaker cycle, you might choose unhedged positions to take advantage of potential currency gains.
  
  
• Position sizing: Overcommitting to one region, country, or asset class can turn diversification into concentration risk. For example, allocating too much to emerging markets like China or Brazil may expose you to sharp volatility if political or regulatory changes occur. By limiting each position to a percentage of your overall portfolio, you keep losses in check while still participating in growth.
  
  
• Rebalancing schedules: International markets can move faster or slower than U.S. markets, which means your allocations can drift over time. A quarterly or annual rebalancing schedule helps bring your portfolio back in line with your original goals. If emerging markets outperform and grow from 10 percent to 20 percent of your total holdings, trimming back to your target allocation locks in gains and restores balance.
  
  
• Diversifying across vehicles: Using a mix of global equity diversification, international bond investing, and alternatives reduces the chance that a single market shock disrupts your entire portfolio. For example, if equities in Asia experience a pullback, bonds in Europe or infrastructure investments in Latin America may offset part of the decline.

Hedging and risk management aren’t about eliminating risk entirely. They’re about controlling how much risk you take and making sure your exposure is intentional. By using hedged funds, sizing positions carefully, and rebalancing regularly, you can stay aligned with your long-term objectives while still taking advantage of global market opportunities.

Practical Steps for U.S. Investors

If you’re building international exposure for the first time, start with a manageable range. For many investors, keeping 10 to 20 percent of your total portfolio in international assets is a practical starting point. From there, you can fine-tune based on your risk tolerance, income needs, and long-term goals.

Here are some specific ways to put this into practice:

• Use low-cost ETFs as your foundation: Broad-based ETFs that track indexes such as the MSCI ACWI ex-U.S. or the FTSE All-World ex-U.S. give you instant global equity diversification. This base layer helps ensure you’re not overexposed to one country or sector.
  
  
• Add targeted allocations: Once you have a broad foundation, consider layering region-specific or country-specific funds. For example, you may add an Asia-Pacific ETF to capture growth in China, India, and Southeast Asia, or a Europe ETF if you want income stability from dividend-paying firms.
  
  
• Balance equities with international bonds and alternatives: Adding sovereign bonds from developed countries such as Germany or Australia provides stability. A small allocation to emerging market bonds or infrastructure funds in Latin America can improve yield and broaden your sources of return.
  
  
• Keep allocations intentional: Don’t allow market swings to dictate your exposure. For example, if emerging markets outperform and push your allocation beyond your target range, trimming back and reallocating to underweight regions keeps your portfolio balanced.
  
  
• Review with an advisor: Regular reviews with a financial advisor help you adjust as markets change and as your personal situation evolves. This helps ensure your international allocation stays aligned with your broader financial plan rather than drifting with short-term market moves.

Building international exposure doesn’t mean overhauling your portfolio. It means starting with a reasonable allocation, choosing the right vehicles, and managing it with discipline. By doing so, you give yourself access to growth abroad while keeping your portfolio aligned with your long-term goals.

How much of your portfolio should be in non-U.S. stocks?

There isn’t a single allocation that works for everyone. The right percentage depends on your circumstances, but research and portfolio models often point to having 20 to 40 percent of your equity exposure abroad as a reasonable guideline. This range is broad enough to capture global equity diversification while keeping the bulk of your assets in familiar U.S. markets.

When you think about your allocation, consider these factors:

• Risk tolerance: If you can handle volatility, you may tilt more toward emerging markets such as China, India, or Brazil, where growth is higher but swings are sharper. If you prefer stability, you may keep more of your allocation in developed markets such as Europe or Japan.
  
  
• Age and time horizon: Younger investors with decades before retirement can afford to take on more international equity exposure, especially in regions with long-term growth potential. Retirees or those nearing retirement often lean toward developed markets where dividends and lower volatility help preserve capital.
  
  
• Income needs: If you rely on your portfolio for cash flow, you might emphasize international dividend-paying companies in Europe or Australia. These markets often distribute a higher portion of earnings, which can strengthen your income stream.
  
  
• Tax considerations: Withholding taxes on dividends and differences in fund structures may affect your after-tax returns. A U.S. investor using ETFs or mutual funds can simplify this, but it’s important to know how taxes impact your effective yield.
  
  
• Comfort with global exposure: Some investors prefer to keep their international allocation closer to 20 percent, while others are comfortable going toward the higher end of the 40 percent range. The decision should reflect how you view global market opportunities for U.S. investors and your willingness to handle the risks that come with them.
  
  

The right balance is not about chasing the highest return. It’s about aligning your international allocation with your goals, income needs, and risk profile. A thoughtful mix of developed and emerging markets within that 20 to 40 percent range can help you participate in global growth without putting your portfolio off balance.

Factors to consider

When you decide how much of your portfolio belongs in non-U.S. assets, the numbers aren’t the only thing that matter. You need to weigh personal factors that shape both your comfort level and your outcomes. Asking yourself the right questions helps you make allocation choices that fit your goals.

• Do you prefer the stability of developed markets or the growth of emerging ones? Developed markets such as Europe, Japan, and Australia generally provide steadier returns with less volatility, often supported by dividend-paying companies. Emerging markets like China, India, or Brazil offer higher growth potential but come with political risk, currency swings, and sharper market moves. The balance between these two reflects how much risk you’re willing to take for potential upside.
  
  
• How much volatility are you comfortable with? Volatility tolerance plays a big role in international investing. If large swings in value make you anxious, you may prefer a lower allocation to emerging markets. If you can ride through sharp drawdowns, you might allocate more to high-growth regions. Your comfort with volatility determines not just your percentage of international exposure but also where that exposure is concentrated.
  
  
• Are you considering the impact of expense ratios and fund costs on your returns? International ETFs and mutual funds often carry higher expense ratios than U.S. domestic funds. Fees may also vary depending on whether you’re using broad global equity diversification funds, regional ETFs, or country-specific products. Over time, even a small difference in costs compounds. Making sure you understand the total expense structure helps you avoid eroding your returns unnecessarily.
  
  
• How often are you reviewing and rebalancing your portfolio? Global markets move differently than U.S. markets. That means your international sleeve can drift away from your targets more quickly. For example, if emerging markets rally strongly, a 20 percent allocation could grow into 30 percent without you realizing it. Setting a clear rebalancing schedule — quarterly, semi-annual, or annual — keeps your allocations aligned with your original strategy and prevents unintentional overexposure.
  
  

Each of these factors influences not just the size of your international allocation but also the way it’s structured. By thinking through stability versus growth, your comfort with volatility, the drag of fund costs, and your review habits, you can shape an allocation that reflects your circumstances and goals while keeping you disciplined over time.

Conclusion

International diversification gives you more than just a broader list of holdings. It opens the door to growth opportunities that the U.S. market alone cannot provide, whether that’s the technology buildout in Asia, the resource cycles in Latin America, or the income-focused companies in Europe and Australia. At the same time, it helps balance your portfolio by lowering reliance on a single economy and a single currency.

The tradeoff is that investing abroad brings its own set of challenges. Currency swings can amplify or reduce returns, political decisions can alter market conditions overnight, and taxes can cut into income if you don’t account for them upfront. These are real risks, but they are also manageable. With the right mix of U.S.-friendly investment vehicles, careful position sizing, regular rebalancing, and a thoughtful approach to asset classes, you can keep those risks under control while benefiting from global market opportunities.

If you haven’t reviewed your international exposure recently, this is the right time to do it. Ask yourself whether your current allocation reflects your goals, your risk tolerance, and the global cycles shaping tomorrow’s economy. And remember, you don’t have to figure it out on your own — working with a financial advisor can help you determine the allocation that fits your needs and keeps your portfolio aligned with your long-term plan.