4 Ways to Invest Internationally

Foreign stocks are again competitive with their domestic counterparts. Here are four ways to gain exposure.

What do Nestlé, Samsung, and Volkswagen have in common? Apart from being among the world's biggest companies, they're also all headquartered abroad.

"Many U.S. investors have this misguided notion that the S&P 500® Index is the be-all and end-all of the stock market," says Jeffrey Kleintop, Schwab's chief global investment strategist. "But if you're not investing abroad, you're missing out on more than half the global market."

Plus, after more than a decade of getting trounced by U.S. equities, foreign stocks are finally having their moment. From the end of October 2022 through the end of June 2023, the equal-weighted MSCI EAFE Index, which tracks developed markets abroad, was up more than 20%, whereas the equal-weighed S&P 500 was up just 6%. And international large-company stocks are projected to return 7.6% annually over the next 10 years, compared with just 6.1% annually for U.S. large-company stocks, according to an analysis by Charles Schwab Investment Advisory.

So, how much exposure to international stocks should investors have? "Probably more than they have currently," Jeffrey says. "After so many years of international underperformance, it's likely that many investors have let their allocations sag."

Even so, your degree of exposure should align with your overall goals and risk appetite. "Currency fluctuations, political events, and policy changes can negatively impact returns, with some types of investments more susceptible than others," Jeffrey says.

With that in mind, let's look at the benefits and risks of four common ways to incorporate foreign stocks into your portfolio.