In previous articles, we explored how stock ETFs (exchange-traded funds) and bond ETFs could each have a place in a well-diversified portfolio. Later this year, we’ll take a look at investing with ESG (environmental, social, and governance) ETFs.

But today we’re digging into how you can use international ETFs as part of a geographically diversified portfolio.

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See our international stock ETFs

How much of your money should be in international investments?

Before making any investments, it’s always best to start with your overall asset allocation—that is, how you’ll divvy up your money among the different asset classes—stocks, bonds, and cash.

Once you’ve got that nailed down, it’s time to figure out how much of your total portfolio you’ll invest internationally. As a general rule, Vanguard recommends allocating 40% of the stock portion and 30% of the bond portion of your portfolio to international investments.

Here’s what that looks like in a hypothetical breakdown. Say you’re investing $10,000 and your overall target asset allocation is 50% stocks and 50% bonds. When you combine that with the international recommendation above, you’d invest:

40% / 30% allocation. $3,000 U.S. stocks. $2,000 International stocks. $3,500 U.S. bonds, $1,500 International bonds.


$3,000 in U.S. stocks.
$2,000 in international stocks.
$3,500 in U.S. bonds.
$1,500 in international bonds.

 

It’s easy to invest internationally with ETFs

You might think that investing internationally is complicated, and it can be—if you’re buying individual stocks directly in a foreign market. That can certainly be both challenging and expensive. Instead, you can buy ETFs or mutual funds that invest internationally.

International ETFs—in fact, all ETFs—are easier and tend to be cheaper to buy than individual stocks and bonds.

Instead of spending time buying and managing multiple individual stocks, you can buy a single ETF that gives you access to tens, hundreds, or thousands of stocks with built-in diversification.

And it costs more to buy and sell individual stocks and bonds. You’ll pay a commission each time you make a trade, and that can add up, especially when you trade directly on foreign markets. On the other hand, at most firms you’ll pay just one commission when you buy an ETF. But at Vanguard, you can enjoy commission-free online trading on around 1,800 ETFs from Vanguard and about 100 other companies. (Commission-free trading of Vanguard ETFs applies to trades placed both online and by phone. Learn more about other conditions & costs that may apply.)

ETFs also offer convenience. You can trade them during U.S. hours rather than when the international markets are open.

And although the benefits of a diverse investment mix are many, keep in mind that there are certain tax implications involved with international investments, so it’s always best to consult the IRS1 or speak with a tax advisor.

Let’s talk about risk

All investing involves some risk, and international investing is no exception. While investing internationally opens a universe of investment choices and provides diversification, it introduces some other risks. In addition to the typical risks of investing in stocks or bonds, you’ll also be exposed to:

Country/Regional risk. The possibility that political events (wars, national elections), financial problems (rising inflation, government defaults), or natural disasters (earthquakes, hurricanes, tsunamis) could weaken any country’s or region’s economy and cause investments to decline.

Expand your universe with Vanguard ETFs

See our international bond ETFs

Currency/Exchange rate risk. The possibility that returns could be reduced for Americans investing in international stocks and bonds because of a rise in the value of the U.S. dollar against foreign currencies.

Note that each of these risks increases when you’re investing in emerging markets.

But despite the additional risks, there’s value to having international exposure in a diversified portfolio. International diversification helps balance those risks, especially if you choose to invest in a broad-based ETF—a good defensive move.

In the end, it’s your asset allocation—your stock/bond/cash mix—that’s still the number one factor in both reducing your level of overall risk and your portfolio’s performance.

Types of international ETFs

Vanguard currently offers 15 ETFs that invest internationally, including 2 broad-based ETFs you can use to get maximum diversification: Vanguard Total International Stock ETF (VXUS) and Vanguard Total International Bond ETF (BNDX). Each gives you access to a wide variety of international stocks or bonds, respectively, in a single investment.

As you explore international ETFs, you’ll notice some commonly used terms in their names. When you know what those terms mean, you’ll have a better understanding of what the ETF offers.

  • Global or total world ETFs combine exposure to U.S. and international stock and bond markets.
  • International, total international, all-world ex-U.S., and global ex-U.S. invest internationally only, excluding the U.S.
  • Developed markets are the most advanced economically, such as those in Japan, Germany, France, and Canada.
  • Emerging markets are still evolving, such as those in China, India, Russia, and Brazil. Investments in these countries tend to carry more risk, but along with that risk comes the chance for possible reward.

Which Vanguard international ETFs have corresponding mutual funds?

The following tables show Vanguard international, global, and emerging markets stock and bond ETFs and how they match up with their Vanguard index mutual fund counterparts. Read about the similarities and differences between ETFs and mutual funds.

Bond ETFs

Global

Ticker

 Vanguard ETF®

Ticker

 Vanguard mutual fund

BNDW

Total World Bond ETF

NA

No mutual fund counterpart

 

International

Ticker

 Vanguard ETF

Ticker

 Vanguard mutual fund

BNDX

Total International Bond ETF

VTABX

Total International Bond Index Fund Admiral™ Shares

 

Emerging markets

Ticker

 Vanguard ETF

Ticker

 Vanguard mutual fund

VWOB

Emerging Markets Government Bond ETF

VGAVX

Emerging Markets Government Bond Index Fund Admiral Shares

 

Stock ETFs

Global

 Ticker 

 Vanguard ETF

Ticker

 Vanguard mutual fund

VT

Total World Stock ETF

VTWAX

Total World Stock Index Fund Admiral Shares

 

International

Ticker

 Vanguard ETF

Ticker

 Vanguard mutual fund

VSGX

ESG International Stock ETF

NA

No mutual fund counterpart

VEU

FTSE All-World ex-US ETF

VFWAX

FTSE All-World ex-US Index Fund Admiral Shares

VSS

FTSE All-World ex-US Small-Cap ETF

VFSAX

FTSE All-World ex-US Small-Cap Index Fund Admiral Shares

VEA

FTSE Developed Markets ETF

VTMGX

Developed Markets Index Fund Admiral Shares

VGK

FTSE Europe ETF

VEUSX

European Stock Index Fund Admiral Shares

VPL

FTSE Pacific ETF

VPADX

Pacific Stock Index Fund Admiral Shares

VNQI

Global ex-U.S. Real Estate ETF

VGRLX

Global ex-U.S. Real Estate Index Fund Admiral Shares

VIGI

International Dividend Appreciation ETF

VIAAX

International Dividend Appreciation Index Fund Admiral Shares

VYMI

International High Dividend Yield ETF

VIHAX

International High Dividend Yield Index Fund Admiral Shares

VXUS

Total International Stock ETF

VTIAX

Total International Stock Index Fund Admiral Shares

 

Emerging markets

Ticker

 Vanguard ETF

Ticker

 Vanguard mutual fund

 VWO

FTSE Emerging Markets ETF

VEMAX

Emerging Markets Stock Index Fund Admiral Shares

 

 

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Notes:

You must buy and sell Vanguard ETF Shares through Vanguard Brokerage Services (we offer them commission-free) or through another broker (which may charge commissions). See the Vanguard Brokerage Services commission and fee schedules for full details. Vanguard ETF Shares are not redeemable directly with the issuing fund other than in very large aggregations worth millions of dollars. ETFs are subject to market volatility. When buying or selling an ETF, you will pay or receive the current market price, which may be more or less than net asset value.

All investing is subject to risk, including the possible loss of the money you invest. Diversification does not ensure a profit or protect against a loss.

Bond funds are subject to the risk that an issuer will fail to make payments on time, and that bond prices will decline because of rising interest rates or negative perceptions of an issuer’s ability to make payments.

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