Quick Navigation
I've been investing for over a decade, and if there's one thing I learned early on, it's that putting all your money in US stocks is a risky bet. International ETFs give you exposure to markets outside the US—think European giants, Asian tech, emerging economies. But with dozens of funds out there, picking the right ones can be overwhelming. I've tested many of them, and here are the five that actually deliver on diversification without killing you on fees.
Why You Need International ETFs
Most US investors are heavily home-biased. I was too, until 2018 when my portfolio took a hit while European stocks were rallying. The truth is, international equities often move differently than US stocks, providing a smooth ride over the long term. Plus, you get access to companies like Toyota, Nestlé, Alibaba, and Samsung—brands you already use. A 20-40% allocation to international is common among savvy investors.
But not all international ETFs are created equal. Some track only developed markets, others include emerging markets. Expense ratios range from 0.07% to over 0.50%. And don't get me started on dividend withholding taxes—some funds handle them better than others. Let's dive into the top five I recommend.
Top 5 International ETFs Ranked
After poring over performance data, holding compositions, and costs (and actually holding most of these in my own accounts), here are my picks:
| Rank | ETF Name | Ticker | Expense Ratio | # of Holdings | Focus |
|---|---|---|---|---|---|
| 1 | Vanguard Total International Stock ETF | VXUS | 0.07% | 8,400+ | Total world ex-US (developed + emerging) |
| 2 | iShares Core MSCI Total International Stock ETF | IXUS | 0.07% | 7,600+ | Similar to VXUS, slightly different index |
| 3 | Vanguard FTSE Developed Markets ETF | VEA | 0.05% | 4,000+ | Developed markets only (no emerging) |
| 4 | Schwab International Equity ETF | SCHF | 0.06% | 2,100+ | Developed large/mid caps |
| 5 | iShares MSCI EAFE ETF | EFA | 0.32% | 930+ | Europe, Australasia, Far East (developed) |
1. VXUS – The All-in-One Choice
Vanguard's VXUS is my go-to for pure diversification. It covers every region—Japan, UK, China, Canada, Switzerland—you name it. Over 8,400 stocks means you own a slice of the global economy outside the US. Expense ratio is a rock-bottom 0.07%. I've held this for years and love its simplicity. One minor gripe: emerging markets exposure is about 25%, which some might find high, but I see it as a feature.
2. IXUS – The iShares Alternative
Almost identical to VXUS but tracks the MSCI ACWI ex USA index. I've used both; IXUS has slightly more exposure to smaller companies. The expense ratio matches Vanguard's 0.07%. If you're already in iShares ecosystem (like I was for a while), this is a no-brainer. One thing to note: it pays dividends quarterly, while VXUS pays semi-annually. For some that matters.
3. VEA – For Developed Markets Only
If you want to skip emerging markets—maybe you already have separate emerging exposure—VEA is your fund. It's even cheaper at 0.05%. I used VEA alongside VWO (emerging) for a few years to fine-tune my allocation. The yield is around 3%, which is decent. Drawback: no China or India stocks, so you miss some growth.
4. SCHF – Schwab's Low-Cost Option
SCHF is a solid choice for Schwab fans. 0.06% expense ratio and a focus on large- and mid-cap developed companies. Its benchmark is the FTSE Developed ex US Index. I don't hold this myself because I prefer broader coverage, but for core holdings it's excellent. Just be aware it excludes small caps, which historically have higher returns.
5. EFA – The Old Reliable
EFA is the classic international ETF, launched in 2001. It's pricier at 0.32%, but immensely liquid. I recommend it only if you're trading frequently or need options market depth. For buy-and-hold, the cost is a turn-off. I personally moved away from it after VXUS came out. Still, it tracks the EAFE index (Europe, Australasia, Far East) and has a long track record.
How to Choose the Right One for You
Picking the best international ETF depends on your goals:
- Max diversification: Go VXUS or IXUS. You get everything, one fund.
- Lowest cost: VEA or SCHF—both under 0.06%.
- Developed only: VEA if you want small caps too, EFA if you need high liquidity.
- Tax efficiency: For taxable accounts, some prefer funds that minimize foreign tax credit impact. VXUS and VEA are solid.
3 Mistakes I See Investors Make
Mistake 1: Overlooking Currency Risk
International ETFs are subject to currency fluctuations. When the dollar strengthens, your returns get squeezed. I remember in 2015, my international holdings dropped 10% solely due to dollar appreciation. Solution: don't panic—currency moves even out over long periods. Also, consider currency-hedged ETFs if you're short-term, but for buy-and-hold leave it unhedged.
Mistake 2: Chasing Past Performance
Many investors pile into the hottest international market (emerging one year, Europe another). I made that mistake in 2017 when I overweighted India ETFs—got burned. Stick to a broad fund like VXUS; it rebalances for you.
Mistake 3: Ignoring the Foreign Tax Credit
US investors get a foreign tax credit on dividends from international ETFs held in taxable accounts. But not all funds qualify. For example, some swap-based ETFs or those with high turnover might reduce the credit. I always check the fund's tax documentation. VXUS, IXUS, VEA all pass through the credit nicely.
Frequently Asked Questions
This article was fact-checked against current ETF data as of the latest available filings. Always verify with your broker for exact holdings and tax implications.
Comments
0