Many of the world's best companies are based in the U.S., but plenty of international companies make great investments. Don't sell yourself short or ignore them completely because of unfamiliarity or home bias.
My go-to way to invest in international stocks is through the Vanguard Total International Stock ETF (VXUS -0.27%). It's a one-stop shop that takes the research and guesswork out of picking companies abroad. That ease makes it an ETF you can feel comfortable holding for the long haul. I know I plan to do so.
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All boxes checked with one ETF
VXUS's name is fitting because it holds almost every international stock on the market. Its 8,790 holdings include both developed and emerging markets, offering investors a combination of stability and growth potential.
Developed markets have more mature economies and financial infrastructure, so companies there tend to be steadier. Emerging markets are undergoing modernization, so they're typically riskier but offer greater upside. There are exceptions, of course, but that's the general risk-reward trade-off between them. Here's how VXUS is divided by region:
- Emerging Markets: 26.21%
- Europe: 36.38%
- Pacific: 28.46%
- Middle East: 0.83%
- North America: 8.11%
- Other: 0.01%
Picking good individual stocks can sometimes be challenging, regardless of experience. However, international stocks involve more moving parts due to geopolitical developments, differences in accounting standards, fluctuating currency exchange rates, and other factors that may be overlooked when looking into U.S. stocks.
That's why a broad international ETF that lets you essentially invest in the entire international market at once is as good as it gets. It's simple and straightforward.
NASDAQ: VXUS
Key Data Points
VXUS should serve a specific purpose in your portfolio
Owning VXUS is more about hedging against the U.S. market and economy than it is about trying to outperform the S&P 500. Over the past decade, the S&P 500 has outperformed VXUS, 322% to 145%.
I believe investors should keep most of their money in U.S. stocks (at least 90%), but there's value in not tying all your money to one country's economy. The U.S. economy is resilient and the best wealth-creating engine around, but it's far from foolproof.
At worst, VXUS can be a safety net when U.S. stocks are slumping or stagnant. At best, it continues to deliver competitive returns as it has since the start of last year, and you can take advantage of its underrated dividend.
VXUS's dividend yield is 2.3%, which is less than the 3% it has averaged over the past five years, but it's still more than double what you'd get from an S&P 500 ETF. It's also on par with or even better than many popular dividend-focused ETFs, so it's a true two-for-one and worth owning.
