To diversify across countries and currencies, first choose a stock-and-bond mix that fits your goal and risk tolerance, then use broad international investments to add exposure beyond your home market. Decide whether you want foreign-currency exposure or a hedge, check costs and holdings, and rebalance periodically. International diversification can reduce dependence on one market, but it cannot guarantee gains or prevent losses.
1. Set your overall stock-and-bond mix first
Decide how much of your portfolio belongs in stocks, bonds, and cash before choosing countries. The right mix depends on your goal, the time available to reach it, and both your willingness and ability to withstand losses. A longer time horizon may allow you to accept more volatility; money needed soon may call for a less volatile allocation. Investor.gov explains these factors in its guide to asset allocation and diversification.
Geographic diversification is one layer of that plan, not a substitute for balancing asset classes. A portfolio concentrated in international stocks is still exposed to stock-market risk, and adding more countries does not make losses impossible.
2. Choose broad international exposure
For U.S. investors, options include U.S.-registered international mutual funds and ETFs, international index funds, American depositary receipts (ADRs), U.S.-traded foreign stocks, and direct investment in foreign markets. A global fund may hold U.S. and foreign companies; an international fund generally excludes U.S. companies. Read the fund mandate rather than relying on its name. Investor.gov outlines these approaches in its international investing overview.
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Outbyte PC Repair FREERepair Windows errors before they cause bigger problemsFix Now →Outbyte Driver Updater FREEScan for outdated or missing drivers - takes under a minuteDriver Scan →A broad fund can provide exposure to many holdings through one investment, but “international” does not necessarily mean broadly diversified. A fund focused on one country, region, or emerging markets can be much narrower. Review its largest holdings, country and sector weights, and overlap with funds you already own. ETFs trade during the day at market prices; mutual funds are generally transacted at a price calculated on a schedule. Neither structure guarantees broad diversification—the underlying holdings determine that.
Direct foreign-market investing may involve different trading operations, less liquidity, information beyond U.S. securities filings, and legal remedies that differ from those available in the United States. For many investors, broad funds are a simpler way to obtain international exposure; they are an educational example, not a recommendation of a particular fund or ticker.
3. Decide how much currency exposure you want
A foreign investment’s return in your home currency depends on both the investment’s local-market performance and exchange-rate movements. For a U.S. investor, a stronger dollar means a foreign holding translates into fewer dollars; a stronger foreign currency can add to the dollar return. As Investor.gov puts it: “When the exchange rate between the U.S. dollar and the currency of an international investment changes, it can increase or reduce your investment return.”
For example, a foreign asset can rise in value in its local currency yet fall in dollar terms if that currency weakens enough against the dollar. The reverse can also happen. The same principle applies to investors whose base currency is not the U.S. dollar, with the relevant exchange rate being the one between their currency and the investment’s currency.
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- Unhedged: The investment retains exchange-rate exposure. Currency moves may amplify or reduce the return measured in your home currency.
- Partly hedged: Some exposure is offset, but exchange rates can still affect returns.
- Hedged: The fund seeks to reduce exchange-rate effects relative to a named currency. Hedging does not eliminate every risk and can affect costs and results.
Do not assume that all foreign investments hedge currency risk. Check the prospectus and share-class details for the fund’s policy and the currency to which it hedges. Vanguard suggests considering dollar-hedged international bonds because bonds may be more affected by currency risk than stocks; that is Vanguard’s view, not a universal rule or a hedge ratio suitable for everyone. The appropriate choice depends on your circumstances, goals, and tolerance for exchange-rate swings.
4. Compare investments on the same criteria
Before adding an international holding, assess what it contributes to the portfolio and what it may cost. The risks and protections also depend on your country of residence, the investment’s domicile, and how you access it.
- Geographic breadth: Is it global, broadly non-domestic, focused on developed or emerging markets, or limited to one region or country?
- Asset class and role: Does it hold stocks or bonds, and what part of your overall allocation is it meant to fill?
- Currency policy: Is it unhedged, partly hedged, or hedged to a named currency? Does the specific share class follow that policy?
- Concentration and overlap: Which countries, sectors, and companies dominate? Do its holdings duplicate investments elsewhere in your portfolio?
- Costs and trading: Consider fund expenses, commissions, currency conversion, taxes or withholding, liquidity, and trading hours where relevant.
- Access and investor protections: Check the fund’s domicile, local registration, broker or adviser status, disclosures, and the legal remedies that apply to you.
International investments may carry higher transaction costs, currency controls, and unexpected taxes in some countries. They can also be affected by political, economic, and social events; different information availability and market operations; and lower liquidity. Emerging markets can involve especially elevated political, economic, and currency risks. Investor.gov’s international investing overview discusses these risks for U.S. investors. Protections and tax treatment vary by jurisdiction, so check the rules that apply where you live and invest.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.5. Choose a target without treating a provider’s guidance as a rule
There is no universal percentage of a portfolio that should be international. The target should fit your overall plan, investment horizon, and tolerance for risk—not a forecast of which country will lead next. U.S. companies may already earn revenue abroad, but that does not make a U.S.-focused portfolio equivalent to owning foreign-market investments.
Vanguard recommends that at least 20% of both stocks and bonds be international. For investors seeking what it calls the “full diversification benefits,” Vanguard says they could consider about 40% of their stock allocation in international stocks and about 30% of their bond allocation in international bonds. These are Vanguard’s provider recommendations, not regulator requirements or personalized advice. See Vanguard’s explanation of why to invest internationally for its rationale and qualifications.
Historical performance is not a reliable way to pick a permanent allocation. Vanguard’s 2025 illustration, based on relevant MSCI indexes and historical stock data from Bloomberg, shows that over the 10 years ended December 31, 2024, a hypothetical $100 invested in U.S. stocks grew to $334, while $100 in non-U.S. stocks grew to $160. These index-based balances are not investable results or forecasts, and past performance does not guarantee future results. The example illustrates that international stocks can lag for long periods as well as lead in other periods; it is not a reason to time markets. Details appear in Vanguard’s discussion of global diversification.
6. Rebalance when the portfolio drifts
Market movements can make one region or asset class a larger share of your portfolio than you intended. Rebalancing restores the planned mix. Investor.gov describes two common approaches:
- Rebalance at a regular interval, such as every six or 12 months.
- Rebalance when a holding moves beyond a preset percentage from its target.
These are examples, not a required schedule. Investor.gov says rebalancing generally works best relatively infrequently. Taxes, transaction costs, account type, and directing new contributions to underweighted holdings can affect how you implement it. See Investor.gov’s guidance on asset allocation, diversification, and rebalancing.
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