by Joseph Vecchio March 19, 2021

Today I am going to share with you how to buy international stocks, and why they are so important to have in your investment portfolio.

Investing in the stock market can be extremely intimidating, and even more so when expanding into international markets. For this reason, many investors stick to companies that they are familiar with such as Google, Apple, and Netflix. 

While these companies do consistently perform well, there is a problem with this strategy

The resulting portfolio will lack diversification, and greatly increase your risk. A Fiduciary Advisor can help you meet your desired level of risk with a personalized portfolio and ensure that you will remain financially healthy.

Outlook on Overseas Economies

The three biggest economies outside of the United States are Britain, Japan, and France – in that order, and the projections for all of these countries are less than optimistic.

Here’s a summary:

  • Brexit is Britain’s challenge to future excess growth. Such a difficult transition will likely mute the country’s growth prospects.
  • Japan’s highly-structured society along with its decreasing birth rates may result in subdued economic growth.
  • And finally, there is France, which has a tradition of strong government regulations on limiting the workweek. This could also suggest only moderate economic growth potential relative to the U.S. economy.

For these reasons, many investors believe that proper diversification can be achieved using low cost index funds that encompass all 3000 US stocks. 

Although Apple, Google, Facebook may have their roots as a United States company, their reach is global.

With so many U.S. companies earning revenue from international efforts, owning U.S. companies means effectively gaining exposure to international markets.

The fact that certain U.S. companies have international business activities is undeniable.

But, will those business activities show up in the returns in the U.S. stock market?

US vs International Stock performance
Graph of US international stock performance Total return 1999-2016

The most interesting time period to evaluate is the 10-year period between 2000 and 2009.

During this time, the S&P 500  produced a total return of negative 3.25%. If an investor during this time had diversified with international stocks would have been able to earn positive returns of 2% each year during that time period.

Using disciplined portfolio rebalancing can also yield higher returns than just holding US stocks. But this is not guaranteed. Looking at a greater time period, it becomes more clear that investing in international stocks is a better opportunity to increase returns in the short term when the US market is underperforming. 

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