The United States is the world's most innovative and best-performing economy from an investment standpoint. America's stock market is worth approximately $62 trillion, several times that of the second-closest country.
Investors continue piling money into the U.S. stock market amid the artificial intelligence (AI) boom. Look no further than the jaw-dropping returns that the "Magnificent Seven" stocks have generated since early 2023.
However, every investment idea eventually grows crowded, and nothing good lasts forever. When it reaches that point, it may be time to explore some contrarian ideas.
One idea is to look outside the United States. The Vanguard Total International Stock ETF (VXUS -0.72%) is an excellent way to accomplish this. Here is why it could be the best index fund you can invest $100 in right now.
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International stocks could be due
No investment strategy, industry, or type of asset performs well all the time. If you look back far enough, there are times when U.S. stocks outperform international stocks for stretches and vice versa. Hartford Funds researched and charted rolling five-month returns for U.S. and international stocks, and found that U.S. stocks have outperformed for the past 14 years and counting.
But this period of dominance for U.S. stocks could be growing long in the tooth. Multiple indicators are sounding the alarm about the U.S. stock market's valuation, with some calling the current AI stock boom a market bubble that rivals previous instances, which ultimately resulted in catastrophe.
There's no sense in trying to time when that trend changes course, but an investor building a diversified portfolio may want to consider adding international stock exposure.
Things to like about this particular index fund
The possibilities seem endless for index funds and other exchange-traded funds. So, why does the Vanguard Total International Stock ETF stand out?
The Vanguard Total International Stock ETF tracks the FTSE Global All Cap ex U.S. Index, which comprises over 8,600 stocks of companies based worldwide. The index fund ensures instant diversification, making life easier for investors because there's no need to try to follow foreign companies, translate earnings calls, etc.
Aside from the companies within the index fund, investors can feel good that it's a Vanguard fund. Vanguard has been around for decades and is one of the world's largest fund managers. Vanguard's ownership structure is such that the funds it manages own the company's equity, eliminating any potential conflict of interest.
The Vanguard Total International Stock ETF also features a low expense ratio of just 0.05% and a minimum investment of $1. That means investors can trust the fund and its management, and there is little risk associated with it, other than the investment risk inherent in owning stocks or funds in general.
Yes, there are top-notch stocks outside of the United States
Investors worldwide revere the United States for its capitalism and its role as a hub for corporate growth. Still, there are numerous remarkable businesses based outside the United States. The Vanguard Total International Stock ETF includes numerous blue-chip stocks among its top holdings, including:
- Taiwan Semiconductor Manufacturing
- Tencent
- Alibaba
- ASML
- SAP
- AstraZeneca
- Nestle
- Novartis
- Samsung Electronics
- Roche
These companies are among the world's leaders in industries like semiconductors, consumer electronics, software, healthcare, and household goods. However, some of these companies don't list their stocks on U.S. exchanges, so the easiest way to invest in them is through an index fund like this one.
The Vanguard Total International Stock ETF has generated annualized returns of 8.3% over the past decade, a solid performance during a period when U.S. stocks have outperformed foreign stocks. When that trend eventually reverses, this index fund, with its diverse holdings and low fees, could generate even more impressive results.
