International stocks are shares in companies based outside the United States, from Taiwan Semiconductor and Samsung Electronics to ASML, HSBC and Tencent. Together they account for a little over a third of the world's stock market value, yet many US portfolios hold far less, a pattern known as home bias. This guide covers how large the non-US market is, why US investors tend to underweight it, what currency moves do to returns, how developed and emerging markets are weighted, which broad index funds cover the space, how the foreign tax credit works on fund dividends and the risks involved. Funds named here are examples for comparison, not recommendations, and the guide to investing in stocks covers the basics of owning funds.
How much of the world's stock market is outside the US?
About 36%: on September 30, 2026, US companies made up 64.21% of the MSCI ACWI Index, which tracks 2,414 large and mid-sized companies in 47 countries.
Japan was the next-largest market at 5.2%, followed by Taiwan at 3.46%, the UK at 3% and Canada at 2.9%. An index that adds smaller companies gives a similar split: Vanguard's Total World Stock ETF (VT), which tracks FTSE Russell's Global All Cap Index, had 62.4% of its stocks in US companies on the same date. The US share is not fixed, though. Vanguard's 2021 research, also using MSCI indexes, put it at 58.3% on September 30, 2020, so a portfolio held at world market weights would have tilted about 6 points further toward the US in six years without a single trade.
The non-US market is top-heavy too. The 10 largest companies in the MSCI ACWI ex USA Index, led by Taiwan Semiconductor at 5.22% and followed by Samsung Electronics, SK Hynix and ASML, made up 16.49% of it on September 30, 2026; the rest of the top 10 were HSBC, Tencent, Roche, Shell, Royal Bank of Canada and Novartis.
What is home bias, and how strong is it among US investors?
Home bias means holding more of your own country's stocks than its share of the world market suggests, and US investors show a milder version than most.
Vanguard's 2021 paper, using IMF survey data for the end of 2019, found that US investors held about 1.4 times as much in US stocks as the US weight in a global index implied. British investors held 4.9 times their home market's weight, Canadians 16.7 times and Australians 30 times; the multiples run higher for smaller markets, since even a moderate home allocation is many times a small global weight. The paper attributed home bias to regulatory constraints, tax considerations and behavioral tendencies.
In dollars, US investors owned $15.2 trillion of foreign stocks at the end of 2025, up from $12.1 trillion a year earlier, according to the Treasury Department's annual survey. Apart from the Cayman Islands, where many companies are incorporated, the largest holdings were in the UK at $1.5 trillion, Canada at $1.3 trillion and Japan at $1.3 trillion.
Ready-made portfolios set the split deliberately. Vanguard's target-date funds hold about 60% of their stocks in the US and 40% abroad; Vanguard describes this as a home bias and says allocations of 30% to 40% international have provided more than 95% of the benefit of full market-cap diversification. With the US now 62% to 64% of global indexes, though, a 60% US share sits slightly below market weight. Target-date funds covers how those mixes change over time, and the stock and bond split itself is the subject of asset allocation by age.
The cost of home bias shows up when the home market stalls. Japan's Nikkei 225 closed at a record 38,915.87 on December 29, 1989, and the index did not close higher until February 22, 2024, according to the BBC, more than 34 years later, a count that leaves out dividends.
How do currency moves change international returns?
A foreign stock's return in dollars combines its local return with the change in that currency against the dollar, so currency can add to gains or deepen losses.
Worked example: $10,000 in European stocks that rise 10% in euros
The same 10% local gain gives four different results for a US investor, depending on what the euro does over the period:
| Euro against the dollar | Calculation | Value in dollars | Return in dollars |
|---|---|---|---|
| Rises 5% | $10,000 × 1.10 × 1.05 | $11,550 | +15.5% |
| Unchanged | $10,000 × 1.10 × 1.00 | $11,000 | +10.0% |
| Falls 5% | $10,000 × 1.10 × 0.95 | $10,450 | +4.5% |
| Falls 10% | $10,000 × 1.10 × 0.90 | $9,900 | −1.0% |
In the last row, a currency drop of the same size as the local gain leaves the investor slightly behind, because the two changes multiply rather than add.
For reference, the latest dollar-euro rate is 1 USD = 0.894000 EUR (Nov 2, 2026). The euro and the yen were the two largest currencies in the MSCI EAFE Index on September 30, 2026, at 34.86% and 23.69% of its value; the USD to EUR and USD to JPY converters show current rates for both.
Index data show how large the effect can be. MSCI publishes its EAFE Index of developed markets outside the US and Canada in local currencies, in dollars and hedged back to dollars:
| Year | EAFE in local currencies | EAFE in US dollars | Currency effect | EAFE hedged to dollars |
|---|---|---|---|---|
| 2021 | 18.70% | 11.26% | −6.27% | 19.43% |
| 2022 | −7.00% | −14.45% | −8.01% | −4.60% |
| 2023 | 16.16% | 18.24% | +1.79% | 19.95% |
| 2024 | 11.28% | 3.82% | −6.70% | 14.14% |
| 2025 | 20.60% | 31.22% | +8.81% | 23.10% |
Returns are net of withholding tax on dividends, and the currency effect is (1 + dollar return) ÷ (1 + local return) − 1. Over the 10 years to September 30, 2026, the index returned 10.05% a year in local currencies and 9.07% in dollars, so currency cost unhedged US investors about a point a year. It also added volatility, lifting the annualized standard deviation from 11.88% to 15.04%. Hedging removed most of that extra swing, leaving a standard deviation of 11.85%, but a hedge is not neutral: it also earns or pays the gap between US and foreign short-term interest rates. That gap helped the hedged index return 12.32% a year over the decade, a period when US short-term rates were mostly higher than those in Japan and Europe. Investors outside the US face the mirror image, covered in currency risk on US assets.
How are developed and emerging markets weighted?
By market value: on September 30, 2026, developed markets outside the US made up about two-thirds of MSCI's ACWI ex USA Index and emerging markets about one-third.
| MSCI index, September 30, 2026 | Companies | Largest country weights |
|---|---|---|
| ACWI ex USA (developed and emerging, excluding the US) | 1,901 | Japan 14.54%, Taiwan 9.67%, UK 8.39%, Canada 8.1%, South Korea 7.15% |
| EAFE (developed, excluding the US and Canada) | 656 | Japan 24.87%, UK 14.35%, France 9.42%, Switzerland 9.01%, Germany 8.67% |
| Emerging Markets | 1,165 | Taiwan 28.94%, South Korea 21.4%, China 19.8%, India 10.65%, Brazil 4.09% |
Within the full ACWI Index, that works out to roughly 64.2% US, 23.8% other developed markets and 12.0% emerging markets.
Emerging markets are concentrated in a few countries and one industry. Taiwan and South Korea made up more than half of the MSCI Emerging Markets Index, and three chipmakers, Taiwan Semiconductor at 15.63%, Samsung Electronics at 7.55% and SK Hynix at 5.90%, made up 29.08% between them, before counting Samsung's separately listed preferred shares at 0.94%. They have also been bumpier. Over the 10 years to September 2026 the emerging markets index had an annualized standard deviation of 17.46%, against 15.01% for ACWI ex USA and 14.88% for the developed-market MSCI World Index, and its largest drawdown, as MSCI measures it, was 65.14%, from October 29, 2007 to October 27, 2008.
Where the line falls is a judgment call. As Vanguard's 2021 paper notes, index providers look beyond income levels to criteria such as how mature a country's financial markets are, how trades settle and how freely capital moves. MSCI and FTSE Russell disagree on South Korea, which MSCI treats as emerging and FTSE as developed. Classifications can also change abruptly. In March 2022, after sanctions, the closure of the Moscow Exchange and limits on selling shares, an overwhelming majority of investors consulted by MSCI called the Russian market uninvestable. MSCI then reclassified Russia from emerging to standalone status, removing its stocks from global and regional indexes as of the close of March 9 at a price that was effectively zero.
Which funds give broad international exposure?
Broad index funds hold thousands of non-US companies in one purchase; the main differences are the index provider, whether small companies are included and where South Korea and Canada land.
| Fund (ticker) | Index | What it covers | Holdings | Expense ratio |
|---|---|---|---|---|
| Vanguard Total International Stock ETF (VXUS) | FTSE Global All Cap ex US | Developed and emerging, all company sizes | 8,901 | 0.05% |
| iShares Core MSCI Total International Stock ETF (IXUS) | MSCI ACWI ex USA IMI | Developed and emerging, all company sizes | 4,582 | 0.07% |
| Vanguard FTSE Developed Markets ETF (VEA) | FTSE Developed All Cap ex US | Developed, including Canada and South Korea | 3,903 | 0.03% |
| iShares Core MSCI EAFE ETF (IEFA) | MSCI EAFE IMI | Developed, excluding Canada and South Korea | 2,626 | 0.07% |
| Vanguard FTSE Emerging Markets ETF (VWO) | FTSE Emerging Markets All Cap China A Inclusion | Emerging, excluding South Korea | 6,507 | 0.06% |
| iShares Core MSCI Emerging Markets ETF (IEMG) | MSCI Emerging Markets IMI | Emerging, including South Korea | 2,852 | 0.09% |
| Vanguard Total World Stock ETF (VT) | FTSE Global All Cap | US and international together | 10,185 | 0.06% |
Vanguard figures come from fund profiles dated September 30, 2026, and iShares figures from fund pages dated October 29 and 30, 2026. Holdings counts are not directly comparable, because the indexes draw their universes differently and a fund need not hold exactly the stocks in its index. In VXUS, emerging markets made up 26.6% of the stock portfolio, against about a third of MSCI's ACWI ex USA Index, largely because FTSE counts South Korea, 6.7% of the fund, as developed.
Mixing fund families can leave gaps or overlaps. Pairing VEA with IEMG holds South Korea twice, since IEMG had 19.37% of its money there and VEA also owns Korean stocks, while pairing IEFA with VWO leaves South Korea out entirely, and IEFA leaves out Canada as well. A single total international fund, such as VXUS or IXUS, avoids the problem; a total-world fund such as VT goes further and holds the US too, at market weight. These are exchange-traded funds: what is an ETF explains the structure, index funds explained covers comparing index funds, and lump sum vs dollar cost averaging covers the choice between adding a new holding at once or in stages.
How does the foreign tax credit work on fund dividends?
Foreign taxes withheld on a fund's dividends can often be claimed as a credit against US tax, if the fund passes them through to shareholders.
A regulated investment company, the tax category most mutual funds and ETFs fall into, can pass foreign taxes through only if more than 50% of its assets at year end are stock or securities of foreign corporations, under section 853 of the tax code. Total international funds generally meet that test. A total-world fund that is mostly American does not, and VT does not appear in Vanguard's 2025 list of funds that passed foreign tax through.
When a fund does pass the tax through, Form 1099-DIV shows it in box 7 and includes it in the dividends in box 1a, so the shareholder reports slightly more dividend income and then gets a tax benefit for the foreign tax. Each year the shareholder chooses between a credit, which reduces tax dollar for dollar and is available without itemizing, and an itemized deduction. The IRS lets small amounts skip Form 1116 when all foreign income is passive, such as fund dividends, all of it appears on payee statements like the 1099-DIV, and creditable foreign taxes total no more than $300, or $600 on a joint return. Credits claimed that way cannot be carried to other years; otherwise, unused credit can generally be carried back one year and forward ten. No credit is allowed on a dividend if the shares were held for less than 16 days during the 31-day period that begins 15 days before the ex-dividend date.
Worked example: Foreign tax on $50,000 in a total international fund
Assume $50,000 in VXUS in a taxable account and a 2.4% dividend yield, in line with the fund's equity yield in its September 2026 profile. Cash dividends come to $1,200. Vanguard reported that foreign tax paid equaled 7.11% of the fund's cash dividends in 2025, so the foreign tax is $1,200 × 7.11% = $85.32, and box 1a shows $1,285.32, the cash dividends plus that tax, assuming no short-term gains were distributed. Box 7 shows $85.32, under the $300 limit for a single filer, so if the other conditions are met the credit can be claimed without Form 1116 and reduces the tax bill by $85.32, provided at least that much US tax is owed. At the same ratios, a single filer reaches the $300 limit at roughly $175,800 in the fund; at $200,000, the foreign tax would be $341.28 and Form 1116 would generally be needed.
Inside an IRA or 401(k), the foreign tax is still withheld before the fund receives the dividend, but because the account's income does not appear on a tax return, there is generally no credit to claim. On the example's ratios that leakage is about 0.17% of the fund's value a year, which is one reason some investors weigh which account holds which fund; Roth vs traditional IRA covers the account types. Whether the dividends are taxed at lower rates is a separate question, covered in qualified vs ordinary dividends; Vanguard reported that 58.46% of VXUS's 2025 box 1a amount counted as qualified foreign dividends. Dividend investing basics explains yield. Tax rules change and situations differ, so a tax professional can confirm how the credit applies.
Have international stocks beaten US stocks?
Not over the last decade: from 2016 through 2025 the S&P 500 returned 14.68% a year, against 8.95% for the MSCI ACWI ex USA Index, both including dividends.
| Year | S&P 500 | MSCI ACWI ex USA | Ahead |
|---|---|---|---|
| 2016 | 11.77% | 5.01% | US |
| 2017 | 21.61% | 27.77% | International |
| 2018 | −4.23% | −13.77% | US |
| 2019 | 31.21% | 22.13% | US |
| 2020 | 18.02% | 11.13% | US |
| 2021 | 28.47% | 8.29% | US |
| 2022 | −18.04% | −15.57% | International |
| 2023 | 26.06% | 16.21% | US |
| 2024 | 24.88% | 6.09% | US |
| 2025 | 17.72% | 33.11% | International |
S&P 500 returns come from the NYU Stern dataset kept by Aswath Damodaran, and MSCI returns are gross, in dollars, from MSCI's factsheet. Compounded, $10,000 at the start of 2016 grew to $39,334 in the S&P 500 and $23,561 in the international index by the end of 2025. International stocks finished ahead in 3 of the 10 years, including 2025, when a weaker dollar helped them gain 33.11% to the S&P 500's 17.72%. The SPY page charts how one large S&P 500 fund has moved since then.
Prices ended the period in different places as well. On September 30, 2026, the ACWI ex USA Index traded at 16.63 times trailing earnings with a 2.41% dividend yield, against 22.69 times and 1.52% for the MSCI World Index of developed markets, US included. A lower price-to-earnings ratio describes current prices; it does not say how either market will perform.
What are the risks of international stocks?
International stocks carry the same market risk as US stocks plus risks of their own, and spreading money across countries has not prevented deep losses in global crises.
- Currency. Exchange rates can shrink gains or deepen losses: in 2024 a stronger dollar cut the EAFE Index's 11.28% local gain to 3.82% for US investors, and in 2022 it roughly doubled the index's loss.
- Global crises hit most markets at once. From October 31, 2007 to March 9, 2009 the MSCI ACWI ex USA Index fell 60.58%, more than the 57.46% drop in the MSCI World Index over the same period. Bear markets and corrections covers US declines in detail.
- Political and legal risk. Sanctions and capital controls can trap foreign investors: in 2022, with the Moscow Exchange closed and sales restricted, MSCI dropped Russian stocks from its indexes at an effectively zero price.
- Concentration. Three chipmakers made up roughly 30% of the MSCI Emerging Markets Index, and Taiwan and South Korea more than half of it, so a shock to one industry or region can move the whole index.
- Long stretches of lagging. International stocks trailed the S&P 500 in 7 of the 10 years from 2016 to 2025, the kind of run that tests whether an investor sticks with an allocation.
- Trading-hour gaps. Many foreign exchanges are closed while US markets trade, so an international ETF's price can drift from the value of its holdings; IXUS closed 0.27% above its net asset value on October 30, 2026.
- Tax leakage in retirement accounts. Foreign tax withheld inside an IRA or 401(k) generally cannot be recovered through the credit.