🎯 In 30 seconds: About two-thirds of the world’s stock market value is in US companies and about a third is elsewhere. Owning some foreign stocks spreads your bets across countries whose markets do not always move together. It also adds currency swings, which can help or hurt. Most people get it through one broad international index fund rather than picking countries.
How big the rest of the world is
MSCI’s All Country World Index covers large and mid-size companies in 23 developed and 24 emerging markets. On its September 30, 2026 factsheet, the US made up about 64% of it. Japan was about 5%, and no other single country reached 4%. Everything outside the US together was roughly 36%.
So a portfolio of only US stocks is a large bet on one country. That bet has paid off well in recent decades. Whether it keeps doing so is unknown, which is the main argument for holding some of the rest.
Why hold any
- Different leaders at different times. In some years foreign markets beat the US by a wide margin; in others they lag. Nobody has reliably predicted which.
- Different industries. Some kinds of companies are much more common in other countries’ markets.
- Valuation. Countries’ stock markets can be cheap or expensive relative to each other, and that tends to matter over long periods.
Why some people hold less
- Higher fund costs than US index funds, though still low for broad index funds.
- Currency risk, explained below.
- Weaker investor protections, political risk or capital controls in some emerging markets.
- Many big US companies already earn a large share of their sales abroad.
How much people commonly hold
| Approach | Foreign share of stocks | Reasoning |
|---|---|---|
| US only | 0% | Simplest; full bet on one market |
| Middle | About 20% to 40% | A common range; some diversification without matching the world |
| Market weight | About 36% (late 2026) | Own the world in proportion to its size, as a total world fund does |
If you own a target-date fund, its fact sheet shows the foreign share it already holds. Pick a number, write it down and rebalance to it; changing it every time one region has a good year defeats the purpose.
Currency: worked example
When you own European stocks, their price is in euros. Your return in dollars depends on both the stocks and the euro. Say a fund of European shares rises 8% in euros over a year.
| What the euro does vs the dollar | Math | Your return in dollars |
|---|---|---|
| Falls 5% | 1.08 × 0.95 = 1.026 | About +2.6% |
| Unchanged | 1.08 × 1.00 | +8% |
| Rises 5% | 1.08 × 1.05 = 1.134 | About +13.4% |
Over a single year currency can make a large difference. Over long periods the effects have tended to be smaller relative to stock returns, but they never go away entirely. Currency-hedged funds try to strip out the currency effect for a cost; most broad international index funds are unhedged.
Emerging markets swing harder
MSCI’s emerging markets index returned about +37% in 2017, about −15% in 2018 and about −20% in 2022, according to its factsheet. Those swings are larger than the all-country index’s in the same years. Broad international funds include emerging markets at their market weight; a separate emerging markets fund is a way to hold more, with more risk.
Ways to own it
| Option | What it is | Watch for |
|---|---|---|
| Total international index fund | Thousands of non-US stocks, developed and emerging | Expense ratio; check it includes emerging markets if you want them |
| Total world fund | US and foreign together at market weight | You cannot set your own split |
| Regional or country fund | One region or one country | Concentration; a bet, not diversification |
| ADRs and foreign shares | Single foreign companies trading in the US | Single-company risk; see the Stock Market Trading chapter on ADRs |
Taxes on foreign dividends
Other countries often withhold tax on dividends paid by their companies, and funds pass that on. In a taxable account you can usually claim a US foreign tax credit for it. The IRS lets you claim it without filing Form 1116 if all your foreign income is passive, it is reported on forms like a 1099-DIV, and your foreign taxes are $300 or less ($600 on a joint return). Inside an IRA you cannot claim the credit, which is one reason some people place international funds in their taxable account. See Which account first, and what goes where.
- Roughly what share of the MSCI world index was outside the US in late 2026? Answer: About 36%.
- A European fund gains 8% in euros and the euro falls 5%. About what do you earn in dollars? Answer: About 2.6%.
- Up to what amount of foreign tax can a single filer claim the credit without Form 1116, if the other conditions are met? Answer: $300 ($600 on a joint return).
- What is a currency-hedged fund trying to do? Answer: Remove the effect of exchange-rate moves on your return, for a cost.