International Stocks

Should an American investor hold international stocks, or just own the U.S.? It’s one of the more debated questions in portfolio construction, and reasonable, sophisticated people land on opposite sides. Warren Buffett and John Bogle both built their case for staying entirely in U.S. stocks. Meanwhile, nearly every target-date fund and diversified model portfolio — including Vanguard’s own — holds a meaningful international allocation. There are strong arguments on both sides. I’ll lay out the case for excluding international stocks, then the case for including them, so you can decide where you land.

Exclusion

From 1970-2025, U.S. stocks (measured by the S&P 500) compounded at roughly 11% annually, while international stocks (measured by the MSCI EAFE) compounded at roughly 8.5% — a meaningful gap over five and a half decades. The U.S. edge shows up most clearly over long horizons: looking at rolling 10-year periods since 1970, the S&P 500 has outperformed the MSCI EAFE more often than not (though not every time). Zoom out to 20- and 30-year stretches and the U.S. advantage becomes more consistent still.

The past does not predict the future, but America has structural advantages that I don’t see any other country matching well enough to consistently produce more profitable businesses over time: world reserve currency status, the world’s largest and deepest capital markets, strong property rights and rule of law, federalism, an independent judiciary, an entrepreneurial culture, unmatched national defense, and a shareholder-friendly system of corporate governance.

Other major economies fall short on one or more of these fronts. Europe operates with heavier regulation, higher taxation, and more rigid labor laws, which can constrain corporate margins and growth. China is run by a centralized, authoritarian regime that limits property rights and rule of law. Many emerging markets lack the political stability and institutional strength necessary for businesses to thrive over the long run.

This isn’t just about political stability — it extends to whether you can trust the numbers. Many international markets have weaker disclosure requirements, less rigorous accounting standards, and thinner protections for minority shareholders than U.S. markets. China is the clearest example: U.S.-listed Chinese companies are often structured as variable interest entities, a legal arrangement that gives American investors a claim on profits without actual ownership of the underlying business, and several have faced accounting fraud scandals and delisting threats tied to U.S. audit-inspection requirements. When you buy a U.S. stock, you’re buying into one of the most heavily regulated and transparent disclosure regimes in the world. That’s not guaranteed elsewhere.

There’s also a demographic headwind specific to the developed international markets. The MSCI EAFE index is dominated by Europe and Japan, both of which have aging, slow-growing, or shrinking populations — Japan’s population has been declining for over a decade, and much of Western Europe isn’t far behind. Slower population growth tends to mean slower labor force growth and slower consumer demand growth, both of which are long-run drags on corporate earnings. The U.S., by comparison, has a younger population and higher immigration-driven growth than most of the developed world it’s being compared against.

The primary argument for international stocks is diversification, but in today’s globalized economy that benefit has eroded. International stocks are now highly correlated with U.S. stocks — correlation sits around 0.84 — and that correlation tends to rise during a crisis, which is exactly when low correlation matters most. Meanwhile, the largest U.S. companies are already global businesses, earning roughly 40% of their revenue from overseas. The U.S. is the headquarters, not the geography of the revenue: owning the largest U.S. businesses already exposes an investor to global consumers, economic cycles, currencies, and supply chains. And within the U.S. market alone, an investor gets exposure to large, competitive businesses across nearly every industry — so a separate international allocation buys less incremental diversification than it might seem to.

International investing also exposes an American investor to currency risk. Foreign stocks trade in their local currency, so buying them means converting dollars into that currency, and selling them means converting back to dollars — and exchange rate moves in between affect your return independent of how the underlying stocks perform. A depreciating foreign currency can turn real gains in the local market into a mediocre return in dollar terms, or even a loss. So even when international stocks outperform on a local basis, currency moves can erase some or all of that edge for a U.S. investor.

International investing also carries geopolitical risk. Foreign governments can nationalize industries, impose punitive regulation, or become embroiled in conflicts that damage the businesses you own — risks that are far less pronounced in the U.S.’s stable political and legal system.

There’s also a subtler version of this risk that’s easy to overlook: the risk that access to your international holdings gets disrupted, even if the underlying businesses themselves are fine. Foreign governments can impose capital controls, freeze assets, or restrict foreign ownership during a crisis. Vanguard’s own international fund disclosures list war, sanctions, and political instability among the risks that can affect a fund’s ability to buy, sell, or even accurately value its foreign holdings. The U.S. government can do the same thing in reverse: sanctions can bar a fund from transacting in a specific country or company, forcing it to freeze or unwind positions at a bad time and a bad price.

Finally, there’s a practical argument that’s easy to undervalue: simplicity. An all-U.S. portfolio means fewer holdings to track, fewer decisions about rebalancing ratios, and less second-guessing during a downturn about whether to trim international, add more, or hold steady. Complexity isn’t free — every additional decision point is an opportunity for a behavioral mistake, and the investor who sticks with a simple plan through a bad decade often outperforms the investor with a theoretically better portfolio they couldn’t stay disciplined with.

Two of the most respected investors in history — Warren Buffett and John Bogle — consistently recommended an all-U.S. portfolio for American investors. Buffett’s own estate plan reflects this: he has directed that his wife’s inheritance be allocated 90% to an S&P 500 index fund and 10% to U.S. Treasuries, with no international exposure at all.

Inclusion

Market leadership rotates, and no single country wins every stretch. The 2000s are a good example: the S&P 500 posted a ‘lost decade’ of negative returns from 2000-2009, while international stocks posted positive returns over the same period. An investor holding only U.S. stocks through that decade would have leaned entirely on a market that wasn’t producing, while an investor with international exposure had another engine still running.

No country remains on top forever, and unexpected things happen all the time. Countries fall from dominance for reasons that were not obvious in earlier years. International exposure is more about risk reduction than it is a return bet. Japanese stocks dominated the 1980s, peaked at the end of 1989, crashed, then took 34 years to recover. This would be detrimental to your wealth if it happened to the U.S. stock market and you were invested 100% in U.S. stocks. It’s unlikely, but what if. The risk of international exposure is a small opportunity cost while the risk of all-U.S. exposure is a catastrophic tail event; this is an asymmetric decision.

“Risk is what’s left over when you think you’ve thought of everything.”

Morgan Housel

While a 0.84 correlation is high, it’s still meaningfully below 1.0. And while correlation does spike during a crisis, the two markets still diverge enough over full cycles that holding both smooths out returns over time and creates opportunities to rebalance into whichever one is cheaper. And owning U.S. multinationals for their overseas revenue isn’t the same as owning international companies directly: a U.S. company selling into Europe still reports earnings, pays taxes, and trades at a valuation entirely in dollars and at U.S. index weights. It doesn’t give you exposure to companies that only exist abroad, or to markets pricing in local economic conditions instead of American ones.

There’s also a concentration argument worth considering. An American investor’s income, home equity, and future Social Security benefits are already entirely dollar-denominated and tied to the U.S. economy. A 100% U.S. stock portfolio doesn’t diversify that — it stacks another large asset on top of the same single-country bet. International exposure is one of the few practical ways to reduce that concentration rather than add to it.

Currency risk also cuts both ways. A weakening dollar — plausible given long-run U.S. debt and deficit trends — would work in the international investor’s favor. And over long holding periods, currency effects tend to wash out relative to the earnings and valuation changes that actually drive returns.

Valuations are another argument for international exposure. Returns are ultimately driven by three things: starting dividend yield, earnings growth, and changes in valuation. Even if U.S. businesses are more profitable and grow earnings faster, international stocks can still outperform on valuation alone. A wide gap has historically set up periods of international outperformance, even without any change in the underlying businesses.

Reversion to the mean is a related idea: asset returns tend to drift back toward their long-term average over time, so a stretch of above-average returns tends to be followed by a stretch of below-average ones. From 2010 through 2026, U.S. stocks compounded well above their long-run historical average — a run of that length and magnitude has, historically, tended to be followed by a period of below-average returns rather than a continuation.

Buffett and Bogle’s views are worth real weight, but they’re not the only credentialed opinion. Bogle’s own firm doesn’t fully follow his stated preference — Vanguard’s target-date funds, built on the firm’s own research, typically hold international at 30-40% of the equity allocation. Two legendary investors having a strong opinion isn’t the same as the question being settled.

Conclusion

There are strong arguments for both sides of this topic, and the honest answer is that nobody knows which one wins from here — that’s only obvious in hindsight. At its core, this is a tradeoff between betting on continued U.S. exceptionalism and hedging against the possibility that it doesn’t continue indefinitely. Ultimately, you have to decide for yourself what gives you the highest probability of success and what helps you sleep best at night. And, most importantly, you have to do what you’ll actually be able to stick with long term.

If you decide you want international exposure, two simple ways you can achieve it are listed below.

Method 1: Allocation Control, VTI + VXUS

Use VTI as your U.S. exposure and VXUS as your international exposure. This method allows you to control the weight you want to each market. If I were going to add international using this method, I would use a weighting of 80% VTI and 20% VXUS, then rebalance annually and whenever VXUS reached 10% or 25%.

Wealth Accumulation Portfolio

• 80% VTI | 20% VXUS

Wealth Harvest Portfolio

• 60% VTI | 15% VXUS | 25% BND

Method 2: The Global Portfolio, VT

VT is a total world index fund. You won’t be able to determine the weight between U.S. and international exposure, but you also won’t ever have to think about it. The fund sets the weight based on market cap. It currently sits at roughly 60% U.S. and 40% international. This allows you to invest 100% of your money in one fund, VT, and gain U.S. and international exposure.

Wealth Accumulation Portfolio

• 100% VT

Wealth Harvest Portfolio

• 75% VT | 25% BND

Method Note: Holding a combination of VTI/VXUS instead of VT in your taxable brokerage account is more efficient, as VXUS receives the Foreign Tax Credit (FTC), which reduces your U.S. tax liability on international dividends by the amount you paid in taxes overseas.

Whichever path you choose, the goal isn’t to find the portfolio that wins in hindsight — it’s to find the one you can hold through a decade that tests your conviction. And whether you land on Exclusion or Inclusion, the same principle applies either way: keep your costs low and your portfolio simple enough to actually stick with. A few low-cost index funds, held consistently, will beat a complicated strategy abandoned halfway through.