Want to Turbocharge Your Returns in 2023? Buying These Stocks and ETFs Might Do It.

Maybe, just maybe a new bull market is on the way for the S&P 500 in 2023. The year is certainly off to a good start on Wall Street. 

But you don't have to limit your horizons to the biggest companies that trade on U.S. stock exchanges. If you want to turbocharge your returns in 2023, buying foreign stocks might help you do it.

The world is your oyster

Some stock markets are already in new bull markets. The commonly accepted definition of a bull market is when stock prices broadly increase by at least 20% from their cyclical low. Two indexes that track only non-U.S. stocks meet that criterion -- the FTSE Global All Cap ex US Index and the MSCI World ex USA Index.

There are several reasons why international stocks are performing so well. Macroeconomic indicators in Europe have been surprisingly positive. Northern Europe has experienced warmer-than-usual weather this winter, which provided a boost to economic activity there. China has transitioned away from imposing strict lockdowns to prevent COVID-19's spread, and its efforts to fully reopen its economy have moved more quickly than anticipated.

You can't directly buy international indexes. However, you can invest in exchange-traded funds (ETFs) that track those indexes.

iShares MSCI ACWI ex U.S. ETF (ACWX 0.08%), as its name implies, attempts to track the performance of the MSCI World ex USA Index. It currently owns 1,877 stocks of large-cap and mid-cap companies, all of which are based outside of the U.S. The ETF has soared by more than 20% since bottoming out last October.

Vanguard Total International Stock ETF (VXUS 0.10%) attempts to track the performance of the FTSE Global All Cap ex US Index. It currently owns 7,877 international stocks of all market caps. Its performance has lagged just a little behind the iShares MSCI ACWI ex U.S. ETF since it hit its own cyclical low point in October, but it, too, is up by more than 20%.

One of these ETFs comes at a higher cost to investors than the other. The expense ratio for the iShares ETF is 0.32% compared to only 0.07% for the Vanguard ETF. 

Individual stocks

Buying these international ETFs is an easy way to add a diversified group of non-U.S. stocks to your investment portfolio. However, you can also find plenty of great individual international stocks to buy.

Taiwan Semiconductor Manufacturing (TSM -3.11%) ranks as the top holding of both the iShares MSCI ACWI ex U.S. ETF and the Vanguard Total International Stock ETF. Warren Buffett loaded up on shares of the giant chip foundry last year. The multibillionaire loves companies with strong competitive moats -- and Taiwan Semi definitely has one. As the world's leading third-party foundry -- manufacturing the chips designed and sold by many other prominent chipmakers -- it makes a majority of the most advanced chips sold worldwide. Taiwan Semi's shares have soared more than 50% since hitting a bottom in early November.

Another major player in the computer chip industry also stands out as a top holding in both international ETFs. Netherlands-based ASML Holdings (ASML -2.21%) makes the extreme ultraviolet (EUV) lithography machines that are required to manufacture advanced microchips. ASML commands a monopoly in this market for now, although China's Huawei has filed a patent application for its own EUV technology. ASML stock has skyrocketed by over 70% since it hit a recent low in October.

You don't have to focus only on the top stocks in the international indexes, though. Latin American e-commerce and fintech leader MercadoLibre (MELI -0.91%) doesn't even rank in the top 100 holdings of the MCSI or FTSE international ex-U.S. indexes. But its share price has vaulted nearly 60% higher since mid-October. And with its primary South American e-commerce rival imploding because of an accounting scandal, MercadoLibre could keep the momentum going.

Turbocharge time in 2023?

International stocks have already demonstrated over the last few months that they can turbocharge investors' portfolios. They could very well continue to outpace U.S. stocks throughout 2023. 

It's possible that the good times won't keep rolling, though. Another severe COVID-19 outbreak in China or Europe, for example, could rain on the parade, as could an international political crisis. We also can't rule out the possibility that an economic downturn could be on the way that hits harder in Europe or other countries than it does in the U.S.

Despite these potential challenges, though, adding some international stocks to your investments could turbocharge your returns in 2023 -- and beyond.