How to Invest in International Stocks: Benefits, Risks, and Methods

Written by Jim Norris · NorrisAI AlphaLens · Updated August 2026

Quick answer: International stocks offer exposure to economies and businesses outside the US — potentially faster-growing markets, different economic cycles, and diversification benefits. They also introduce additional risks: currency risk, political risk, lower information transparency, and different accounting standards. For most US investors, a blend of domestic and international exposure — often through low-cost index funds — is a sensible approach, with the international allocation typically ranging from 20–40% of the equity portfolio.

The case for international diversification

Valuation differences. US markets have historically traded at premium valuations compared to international markets. During periods when international stocks are cheap relative to US stocks — which has been the case through much of the 2010s and 2020s — the expected forward return from international stocks may be higher.

Economic cycle diversification. Different economies move through economic cycles at different times. When the US economy is slowing, European or Asian economies may be accelerating — reducing the correlation between different parts of a globally diversified portfolio.

Sector exposure. Some sectors are better represented internationally than in the US. Global luxury goods, European financial services, Asian semiconductor manufacturers, and emerging market consumer companies offer exposures difficult to replicate with US-only portfolios.

Currency diversification. Holding assets denominated in multiple currencies reduces dependence on the US dollar's strength or weakness for total portfolio returns.

The additional risks of international investing

Currency risk. Returns are affected by exchange rate movements between the local currency and the dollar. A strong dollar reduces the dollar-value of international returns; a weak dollar enhances them.

Political and regulatory risk. Political instability, nationalization, capital controls, or sudden regulatory changes can significantly impair the value of international investments — especially in emerging markets.

Lower information quality. Accounting standards, disclosure requirements, and corporate governance norms vary significantly across countries. Some markets have weaker protections for minority shareholders than US markets.

Liquidity risk. Many international stocks trade less frequently and with wider bid-ask spreads than comparable US stocks, making it more expensive to enter and exit positions.

How to get international exposure

International index ETFs: the simplest approach. Vanguard Total International Stock ETF (VXUS), iShares Core MSCI Total International Stock ETF (IXUS), and similar funds provide broad international exposure at very low cost. Vanguard FTSE Developed Markets ETF (VEA) covers developed markets specifically; iShares MSCI Emerging Markets ETF (EEM) covers emerging markets.

American Depositary Receipts (ADRs): shares of foreign companies that trade on US exchanges, denominated in dollars. Allow US investors to buy individual foreign stocks without a foreign brokerage account. Examples: Nestlé, Toyota, Samsung ADRs all trade on US exchanges.

US-listed multinationals: companies like Apple, Microsoft, and Procter & Gamble derive 40–60% of revenue internationally. Owning US multinationals provides indirect international exposure with higher information quality and liquidity.

Foreign brokerage accounts: for serious international investors, opening accounts in foreign markets provides access to local stocks without the ADR layer — but adds complexity and cost.

Professor Burton Malkiel of Princeton University recommends holding a meaningful international allocation — typically 30–40% of equity exposure — arguing that the correlation benefits of international diversification are real even if they've been less pronounced in recent decades. The future economic cycle may favor international markets more than the recent past has. — A Random Walk Down Wall Street, W.W. Norton

Developed vs emerging markets

Developed markets (Europe, Japan, Australia, Canada): more stable political environments, stronger investor protections, more transparent accounting. Lower growth potential than emerging markets but lower risk.

Emerging markets (China, India, Brazil, South Korea, Taiwan): higher growth potential, but higher political risk, currency volatility, and governance concerns. A smaller allocation within international exposure is appropriate for most investors.

How AlphaLens handles international stocks

AlphaLens analyzes US-listed international stocks and ADRs using the same 15-framework process as domestic stocks, with additional attention to the currency risk section of the Macro Sensitivity Analysis and extra scrutiny in the Earnings Quality Analyzer for accounting differences in non-US GAAP reporting.

Where to go deeper

For a detailed walkthrough of each research framework, see the complete guide to all 15 AlphaLens frameworks.

For definitions of investing terms, see the AlphaLens investing glossary.