International Stocks: Worth It or Waste of Money?

If you've spent any time in personal finance communities—whether on Reddit, Bogleheads forums, or chatting with colleagues at your level, you've likely encountered passionate debates about international stocks. Some investors swear by global diversification. Others argue the S&P 500 (Standard & Poor's 500) has all the international exposure you need. A third group insists emerging markets are essential for growth.

So who's right? And more importantly, what makes sense for your portfolio?

Let's cut through the noise and examine the actual arguments from different investment communities, backed by data and real-world considerations that matter for high-income earners managing substantial portfolios.

The Case FOR International Diversification

The Academic Perspective: Modern Portfolio Theory Isn't Wrong

The traditional finance argument is straightforward: diversification reduces investment risk without necessarily sacrificing returns. International stocks don't move in perfect lockstep with U.S. markets, providing genuine diversification benefits.

Research consistently shows that developed markets and emerging markets have lower correlations with U.S. stocks than 1.0 (perfect correlation), meaning they provide meaningful diversification. While these correlations have generally increased over recent decades due to globalization, they remain meaningfully below perfect correlation, particularly during certain market stress periods.

Example scenario: During the 2000-2009 "lost decade" for U.S. stocks, international developed markets delivered modestly positive returns while the S&P 500 returned -0.95% annually. A portfolio with 70% U.S. and 30% international would have performed measurably better during this challenging period, demonstrating portfolio diversification's value during extended downturns.

The Valuation Argument: Foreign Stocks Are Cheaper

U.S. stocks currently trade at elevated valuations compared to historical norms and international alternatives. As of mid-2025, U.S. large-cap stocks trade at significantly higher price-to-earnings ratios than developed international and emerging markets.

Simple comparison (using trailing twelve-month P/E ratios as of mid-2025): The U.S. market trades at a trailing P/E of approximately 27, while developed international markets (MSCI EAFE) trade at about 17, and emerging markets at about 15. You're paying roughly 50-60% more per dollar of earnings for U.S. stocks compared to international alternatives.

Higher valuations aren't inherently bad—they can reflect superior growth prospects or business quality. But they do suggest lower expected future returns, all else being equal. When international stocks trade at meaningful discounts to U.S. equities, as they have in recent years, this creates a potential valuation opportunity.

The valuation-conscious argument goes like this: if you're investing fresh capital today, buying the cheaper international markets might offer better forward returns than paying premium prices for U.S. stocks.

The Currency Hedge Perspective

When you invest internationally without currency hedging, you're gaining exposure to foreign currencies—which can work in your favor through currency diversification.

Consider this: if the U.S. dollar weakens, your international investments automatically become more valuable in dollar terms, even if the underlying stocks don't move. This currency component has provided meaningful returns during certain periods of dollar weakness, particularly in the mid-2000s and periodically in the late 2010s and early 2020s.

For high-income earners with substantial portfolios, this currency diversification can serve as a hedge against dollar depreciation—particularly relevant if you're concerned about long-term fiscal policy, inflation, or simply want protection against any single currency's trajectory.

The Case AGAINST International Diversification

The "S&P 500 Is Already Global" Argument

This perspective, popular in many DIY investing communities, makes a compelling point: America's largest companies already generate substantial revenue internationally, providing S&P 500 international exposure.

The numbers support this view:

• According to FactSet data (based on most recent fiscal year data as of January 2025), approximately 41% of S&P 500 revenue comes from outside the United States
• Major holdings like Apple, Microsoft, and Alphabet operate truly global businesses
• You're already getting international economic exposure without the additional complexity

The counterargument: Revenue exposure isn't the same as owning actual foreign companies. When you buy Apple, you own a U.S. company that happens to sell iPhones globally. You don't own foreign competitors, foreign suppliers, or foreign consumers. You own the American intermediary capturing value from international markets.

The Performance Reality Check: U.S. Has Dominated

Here's what actually happened over the past decade and a half:

The U.S. market substantially outperformed international alternatives during the 2010-2024 period. While the exact numbers vary by when you start and stop measuring, the pattern is unmistakable. For example, from 2013 through 2023, the S&P 500 delivered 13.6% annualized returns compared to 6.2% for developed international markets, more than double the returns. An even longer view (mid-2008 through 2024) shows U.S. stocks returning 11.9% annually versus just 3.6% internationally.

This isn't theoretical, it's the lived experience of millions of individual investors over the past decade and a half. The "international diversification" advice cost them real money compared to a U.S. only investment strategy during this extended period of American market dominance.

The "Why Bet Against America?" Argument

The United States has structural advantages that might persist:

• Stronger property rights and rule of law
• More dynamic entrepreneurship and innovation
• Deeper capital markets with better liquidity
• English-language advantage in global business
• Demographic advantages compared to aging Europe and Japan

The philosophical question: if you believe in American exceptionalism, not as nationalism, but as a reasoned assessment of institutional and economic advantages, why dilute your portfolio with international exposure?

The Tax Complexity Problem

International investing introduces real complications for high-income earners:

Foreign tax credits: When foreign countries withhold taxes on dividends, you can claim foreign tax credits on your U.S. return—but this requires additional tax forms and complexity.

Estate tax treaties: For substantial portfolios, international holdings can complicate estate planning due to varying treaty provisions across countries.

Currency tax consequences: Currency gains and losses can create unexpected taxable events, particularly in taxable accounts.

For someone earning $250,000+ with a complex financial situation, these aren't trivial considerations. Your time has value, and portfolio complexity has costs.

The Emerging Markets Wild Card

Emerging markets deserve their own discussion because they split both camps further.

The Bull Case for Emerging Markets

• Demographics: Younger populations with growing middle classes
• Growth rates: Gross Domestic Product (GDP) growth in emerging economies typically exceeds developed markets
• Valuation: Even cheaper than developed international markets
• Resource exposure: Many emerging markets are resource-rich, providing commodity exposure

The Bear Case Against Emerging Markets

• Governance risks: Weaker property rights, political instability, corruption
• Currency volatility: Emerging market currencies can swing wildly
• Performance disappointment: Despite faster GDP growth, stock market returns haven't consistently followed
• Concentration risk: Often dominated by state-owned enterprises or single sectors

Real-world example: Chinese stocks have massively underperformed despite China's economic growth, demonstrating that GDP growth doesn't automatically translate to shareholder returns. Regulatory crackdowns, delisting risks, and corporate governance issues have plagued Chinese equities even as the economy expanded.

What Different Investment Communities Actually Recommend

Bogleheads Forum Consensus

The Bogleheads community (followers of John Bogle's indexing philosophy) typically recommends:

• 30-40% international allocation in total stocks
• Market-cap weighted approach using broad international index funds
• Focus on developed markets, with emerging markets optional
• Tax-efficient placement (international in taxable accounts to capture foreign tax credits)

Their reasoning: stay diversified because you can't predict which markets will outperform, stick with market weights to avoid market timing.

Three-Fund Portfolio Approach

Many simple portfolio advocates recommend:

• 60% U.S. stocks
• 30% international stocks
• 10% bonds (adjusted for age)

This provides meaningful international exposure while maintaining a U.S.-heavy allocation that reflects both market capitalization and home country bias.

The "100% U.S." Advocates

Growing voices, particularly among younger investors who watched international underperform their entire investing lives, argue:

• 100% U.S. stocks until proven otherwise
• "If international outperforms, I'll still do fine with U.S. exposure"
• Simplicity has value—fewer funds, easier rebalancing, cleaner taxes

Market-Cap Weight Purists

Some indexing enthusiasts argue you should match global market weights:

• Approximately 60% U.S. stocks
• Approximately 40% international stocks
• This reflects the actual distribution of global equity markets

Their logic: the market itself is the ultimate arbiter of value. Overweighting any region is making an active bet.

What Actually Makes Sense for High-Income Investors?

After examining these perspectives, here's the practical framework for sophisticated investors in your situation:

Consider Higher International Allocation If:

• You're early in your accumulation phase (under 45) with decades until retirement
• You believe U.S. valuations are stretched and expect mean reversion
• You want explicit currency diversification as a dollar hedge
• Your career income is already heavily tied to the U.S. economy
• You have the discipline to maintain international positions during U.S. outperformance

Consider Lower International Allocation If:

• You're in or approaching retirement and want simplicity
• You have behavioral concerns about holding underperforming assets
• Tax complexity is a significant burden given your situation
• You believe U.S. structural advantages will persist
• Your portfolio is under $500,000 where simplicity matters more

The Middle Ground That Often Works

For most high-income earners with $1 million+ portfolios, a reasonable approach might be:

70% U.S. / 30% International total stock allocation:

• Provides meaningful diversification without betting against America
• Enough international exposure to benefit if the tide turns
• Maintains home country bias that research suggests is reasonable
• Simple enough to implement and maintain

Alternative: 80% U.S. / 20% International:

• Lighter international exposure for those skeptical of the diversification benefits
• Still provides some hedge against extended U.S. underperformance
• Easier to maintain during periods of divergent market performance

The Asset Location Consideration

Where you hold international stocks matters significantly for high-income earners:

Example: When foreign countries withhold taxes on your international stock dividends (typically 10-15%), you can claim those as credits against your U.S. taxes, but only in taxable accounts. On a $300,000 international position, this could save you $1,000-$1,500 per year. In a Roth IRA, you'd forfeit these credits entirely since you pay no taxes anyway.

The Rebalancing Discipline Challenge

Here's something none of the online debates adequately address: behavioral reality.

Maintaining international exposure requires discipline. You need to regularly rebalance into the underperforming asset class, buying more international stocks when they've lagged the U.S. market for years.

Hypothetical scenario: An investor starts 2010 with a 70/30 U.S./international split. By 2024, without any rebalancing, U.S. outperformance naturally shifts this to roughly 85/15. To get back to the original target, they'd need to sell U.S. winners and buy more international stocks. This is the exact opposite of what feels comfortable.

Most investors struggle with this discipline. If you know yourself well enough to recognize you'd abandon international exposure after years of underperformance, a smaller initial allocation might be more realistic than a larger allocation you won't maintain.

The Emerging Markets Decision

Emerging markets deserve a separate decision beyond developed international:

Conservative approach: Skip emerging markets entirely, focusing international exposure on developed markets (Europe, Japan, Canada, Australia, etc.).

Moderate approach: Include emerging markets at market weight within your international allocation—roughly 25% of international, or about 7-8% of your total portfolio.

Aggressive approach: Overweight emerging markets based on valuation and growth prospects—but recognize this is an active bet with higher volatility and risk.

For most high-income professionals, the conservative or moderate approach provides reasonable exposure without the additional complexity and volatility of significant emerging markets positions.

Making Your Decision: A Framework

Rather than prescribing a single allocation, consider these questions:

1. What's your investment time horizon?

• 20+ years: International diversification has more time to potentially benefit from mean reversion
• 10 years or less: Simplicity and lower volatility might outweigh diversification benefits

2. How much complexity can you tolerate?

• International holdings add tax complexity, rebalancing decisions, and behavioral challenges
• This complexity has real costs for your time and mental energy

3. What's your career tied to?

• If your income is heavily dependent on U.S. economic performance, international exposure provides genuine diversification
• If you're already globally diversified through your career, maybe your portfolio doesn't need to be

4. How disciplined are you with rebalancing?

• If you'll abandon international after years of underperformance, start with a smaller allocation
• If you can mechanically rebalance regardless of performance, you can handle larger allocations

5. What does your advisor recommend, and why?

• If working with an advisor, understand the reasoning behind their international allocation recommendation
• Consider whether their fee structure might influence their advice: AUM (Assets Under Management) advisors earn more when you hold more assets they manage, which could affect recommendations about keeping stocks in company retirement accounts versus transferring them
• Fee-only advisors charging flat fees have no such conflicts. They can recommend whatever allocation and account structure truly optimizes your situation, even if it means keeping assets in low-cost company plans they don't manage

The Bottom Line

International diversification isn't binary. The academic case for global diversification remains sound, but U.S. investors faced a 15-year reality where international exposure cost them substantial returns.

For sophisticated investors managing significant wealth, some international exposure (20-40% of stocks) provides reasonable diversification without betting against the U.S. market. Focus on developed markets unless you have strong conviction about emerging markets. Use taxable accounts for international positions to capture foreign tax credits, and maintain rebalancing discipline.

The worst outcome isn't choosing the "wrong" allocation—it's choosing an allocation you won't maintain. Pick a reasonable allocation, implement it efficiently, and focus on what matters more: your savings rate, career progression, and tax optimization.

Remember: your international allocation choice matters less than consistently saving, maintaining low investment costs (including advisor fees), and avoiding behavioral mistakes during market volatility. A 1% AUM fee costs $20,000 annually on a $2 million portfolio regardless of allocation decisions, while a flat fee advisor might charge a fraction of that amount.

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