The US stock market makes up about 60 percent of global market value. That means if your portfolio is 100 percent US stocks, you're ignoring 40 percent of the world's investable companies. An international ETF fixes that gap with one trade.
This guide explains how international ETFs work, what they actually hold, and which funds long-term investors use most often. You'll also see how to pick between developed markets, emerging markets, and total international funds.
What Is an International ETF
An international ETF is an exchange-traded fund (ETF) that holds stocks of companies based outside the United States. Buy one share, and you effectively own slices of hundreds or thousands of companies across Europe, Asia, Latin America, and beyond.
These funds trade on US exchanges like any regular ETF. You don't need a foreign brokerage account or to deal with currency conversions yourself. The fund manager handles all of that behind the scenes.
Most international ETFs track an index, which keeps fees low. A typical international ETF charges between 0.05 and 0.20 percent per year, comparable to US index funds.
Why Add International ETFs to Your Portfolio
Diversification is the main reason. When the US market struggles, international markets sometimes hold up better, and vice versa. In the 2000s, US stocks were roughly flat while emerging markets posted huge gains. In the 2010s, the opposite happened.
Beyond diversification, international ETFs give you exposure to companies and economies you can't access through US-only funds. Nestlé, Toyota, Samsung, ASML, and TSMC are all foreign-listed, and many of the world's fastest-growing economies sit outside the United States.
Vanguard's research suggests holding 20 to 40 percent of your stock portfolio in international funds for proper diversification. Some investors go higher, some lower, but going to zero leaves a meaningful gap.
Three Types of International ETFs
Not all international ETFs are the same. Understanding the categories helps you pick the right one for your goals.
Total International ETFs
These hold both developed and emerging markets in one fund. They are the simplest option for investors who want one-and-done international exposure. Examples include VXUS, IXUS, and ACWX.
Developed Markets ETFs
These focus on stable, established economies like Japan, the UK, France, Germany, Canada, and Australia. They're generally less volatile than emerging markets but offer lower growth potential. Examples include VEA, IEFA, and SCHF.
Emerging Markets ETFs
These hold companies in faster-growing but riskier economies like China, India, Brazil, and Mexico. Returns can be high, but volatility is much higher than developed markets. Examples include VWO, IEMG, and EEM.
Top International ETFs Investors Actually Use
A handful of international ETFs dominate retirement accounts and brokerage portfolios. Here are the ones to know.
- VXUS (Vanguard Total International Stock ETF): Holds about 8,500 stocks across developed and emerging markets. Expense ratio of 0.05 percent.
- IXUS (iShares Core MSCI Total International Stock ETF): Similar to VXUS, with around 4,300 holdings. Expense ratio of 0.07 percent.
- VEA (Vanguard FTSE Developed Markets ETF): Developed markets only, about 4,000 stocks. Expense ratio of 0.03 percent.
- VWO (Vanguard FTSE Emerging Markets ETF): Emerging markets only. Expense ratio of 0.07 percent.
- SCHF (Schwab International Equity ETF): Developed markets focus, lower-cost option for Schwab users. Expense ratio of 0.06 percent.
Expense ratios and exact holdings can change. Check the fund's official page before buying.
How to Build a Portfolio With International ETFs
A simple, well-diversified portfolio doesn't need more than three or four funds. Many long-term investors use some version of this layout:
- 60-70 percent US total market (VTI or FXAIX)
- 20-30 percent international (VXUS or IXUS)
- 10-20 percent bonds (BND or AGG, scaled up as you age)
This is sometimes called a three-fund portfolio. It's simple to rebalance, cheap to own, and consistently outperforms most actively managed strategies over long periods.
To actually put this together, most beginner investors use a commission-free brokerage like Robinhood — it supports fractional shares of VXUS, IXUS, VEA, and the other international ETFs above with no account minimum and no commissions, so you can build the three-fund portfolio one small monthly buy at a time.
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Currency Risk and How It Affects Returns
When you own an international ETF, you're holding stocks priced in foreign currencies. If the US dollar strengthens, the value of those foreign stocks in dollar terms drops, even if the underlying companies are doing fine.
This cuts both ways. A weak dollar boosts your international returns. A strong dollar drags them down. Over long periods, currency moves tend to wash out, but they can be a meaningful drag or boost over any given year.
Some international ETFs offer currency-hedged versions, marked with an H or "Currency Hedged" in the name. These can reduce short-term volatility but add a small layer of cost and complexity. Most long-term investors skip the hedged versions.
Tax Considerations
International ETFs come with a few tax wrinkles US-only funds don't have. Many pay a foreign tax credit, which lets you offset taxes paid to foreign governments against your US tax bill.
The foreign tax credit only works in taxable brokerage accounts. In IRAs and 401(k)s, it gets wasted. Some investors hold international ETFs specifically in taxable accounts for this reason, though the benefit is small for most portfolios.
Consult a tax professional for personal advice, especially if you're holding sizable positions across multiple account types.
Common Mistakes to Avoid
A few patterns trip up new international ETF investors. Knowing them in advance saves you from learning the hard way.
- Skipping international entirely after a strong US decade: Past returns don't predict future winners
- Buying single-country ETFs based on news headlines: Country-specific funds are far more volatile than total international funds
- Doubling up by accident: A total international fund and a developed markets fund overlap heavily
- Selling during a US dollar rally: Currency moves usually reverse over multi-year periods
Pick one broad international fund, set your allocation, and rebalance once a year. That's enough to capture most of the diversification benefit without overcomplicating things.
Frequently Asked Questions
How much of my portfolio should be in international ETFs?
Most guidance from major fund providers like Vanguard and Fidelity suggests 20 to 40 percent of your stock holdings in international funds. The exact number depends on your risk tolerance and outlook, but going to zero leaves you missing 40 percent of the global market by value.
Are international ETFs riskier than US ETFs?
Developed market international ETFs have historically had similar volatility to US ETFs. Emerging markets ETFs are notably more volatile and can swing 30 percent or more in a single year. Total international ETFs blend both, so their risk sits between the two.
What's the difference between VXUS and VEA?
VXUS holds both developed and emerging markets, covering around 8,500 stocks worldwide outside the US. VEA holds only developed markets, around 4,000 stocks, and excludes countries like China, India, and Brazil. If you want one-and-done international exposure, VXUS is the broader choice.
Can I lose money in an international ETF?
Yes, like any stock investment. International markets can drop sharply during global recessions, currency shocks, or country-specific events. The diversification benefit shows up over decades, not months, so only invest money you don't need for at least five years.
