What an international ETF is and how to buy one

An international ETF is a fund that holds stocks or bonds from companies outside the United States. You buy shares of the ETF through a brokerage account the same way you'd buy a single stock — by entering a ticker symbol, choosing how many shares you want, and placing an order. The fund itself owns the underlying foreign securities, so you own a small piece of many companies at once without having to research or buy them individually.

The actual purchase happens through a brokerage platform: Fidelity, Vanguard, Charles Schwab, E-Trade, or dozens of others. You need a regular taxable brokerage account or an IRA (individual retirement account). Once your account is open and funded, you search for the ETF's ticker symbol — for example, VXUS (Vanguard Total International Stock) or IEMG (iShares MSCI Emerging Markets) — and buy shares at the market price, which changes throughout the trading day.

Key Takeaways

  • International ETFs let you own pieces of foreign companies through a single purchase, without needing to pick individual stocks or open accounts abroad.
  • You buy them through any U.S. brokerage account using a ticker symbol, just like domestic stocks, and the price changes during market hours.
  • Currency risk means the value of your investment can shift when the dollar strengthens or weakens against other currencies, independent of how the companies perform.
  • Developed markets (Europe, Japan, Australia) tend to be less volatile than emerging markets (China, India, Brazil), and each carries different risks and potential returns.
  • Most financial advisors suggest international holdings make up 20 to 40 percent of a stock portfolio, but the right amount depends on your age, goals, and risk tolerance.

Developed markets versus emerging markets

International ETFs fall into two broad categories: developed markets and emerging markets. Developed markets include established economies like the United Kingdom, Germany, Japan, Canada, and Australia. These countries have stable governments, mature financial systems, and large, well-known companies. An ETF tracking developed markets tends to move more predictably and is generally considered lower-risk, though returns are often more modest.

Emerging markets include countries like China, India, Brazil, Mexico, and South Korea — economies that are growing faster but have less stable political systems, less regulated financial markets, and more volatility. An emerging-market ETF can deliver higher returns over time, but the price can swing sharply in either direction. A single political event or currency crisis can cause a 10 or 20 percent drop in weeks. Many investors hold both types: developed markets for stability and emerging markets for growth potential.

Some ETFs blend both — for example, VXUS holds a mix of developed and emerging markets weighted by market size. Others focus narrowly on a single country (like EWJ for Japan) or region (like IEUR for Europe). Your choice depends on how much volatility you can tolerate and whether you want broad exposure or a specific bet.

Understanding currency risk

When you own an international ETF, you're exposed to currency risk: the value of your investment changes not only because the companies perform better or worse, but also because the U.S. dollar strengthens or weakens against foreign currencies. If you buy a European ETF and the euro falls against the dollar, your investment loses value even if the European companies themselves did well.

Some international ETFs are hedged, meaning they use financial contracts to lock in the exchange rate and protect you from currency swings. A hedged ETF costs slightly more to own (the fund pays for the hedging contracts), but your returns depend only on how the foreign stocks perform, not on currency movements. An unhedged ETF gives you both the upside and downside of currency moves. Over long periods, currency effects tend to average out, but in the short term they can be significant.

If you're investing for 10 or 20 years, most advisors suggest unhedged is fine — you'll ride out the currency ups and downs. If you're nervous about currency swings or planning to use the money in a few years, a hedged version may feel more comfortable, though you'll pay a small annual fee for that protection.

How to choose between specific ETFs

Once you've decided on developed versus emerging markets (or both), you'll find dozens of ETFs in each category. The main differences are cost, holdings, and size. The expense ratio is the annual fee the fund charges as a percentage of your investment — typically 0.05 to 0.50 percent for international ETFs. A 0.10 percent ratio means you pay $10 per year on a $10,000 investment. Over decades, even small differences in fees compound, so lower-cost options from Vanguard, Fidelity, and iShares tend to be popular.

The size of the ETF matters because larger funds are easier to buy and sell — you won't struggle to find a buyer when you want out. VXUS and IEMG are among the largest international ETFs, which is one reason they're widely held. Smaller ETFs can work fine, but they may have wider bid-ask spreads (the difference between what you pay to buy and what you get to sell), which costs you money on entry and exit.

Check what the ETF actually holds. Some track a broad index (like the MSCI World Index), while others focus on specific sectors (technology, financials, energy) or investment styles (value, growth). A broad index fund is simpler for most investors; sector or style bets are for people with a specific conviction about where international markets are headed.

Tax treatment and account type

International ETFs held in a regular taxable brokerage account are subject to U.S. tax on dividends and capital gains, just like domestic stocks. However, some foreign governments tax dividends paid to U.S. investors, and the U.S. tax code allows you to claim a foreign tax credit to avoid double taxation. This is handled automatically on your tax return — you don't need to do anything special.

If you hold international ETFs in an IRA (traditional or Roth), you don't pay taxes on dividends or gains while the money is in the account. This makes IRAs an efficient place for international holdings, especially if the ETF pays high dividends. Contribution limits apply — $7,000 per year for most people under 50 — but there's no limit on how much you can hold once it's in the account.

In a 401(k), you may have access to international ETFs or international mutual funds through your employer's plan. The tax treatment is the same as an IRA: no taxes until you withdraw. If your 401(k) offers international options, it's usually worth using them to diversify beyond U.S. stocks.

How much of your portfolio should be international

Financial advisors typically suggest that international stocks make up 20 to 40 percent of your stock holdings, with the rest in U.S. stocks. The exact split depends on your age, how much risk you can handle, and your personal preference. A younger investor with 30 years until retirement might go 30 or 40 percent international; someone nearing retirement might prefer 20 percent or less.

The reasoning is diversification: U.S. and international markets don't always move together, so holding both reduces the chance that a single market downturn will devastate your portfolio. International markets have sometimes outperformed the U.S. for years at a time, and sometimes underperformed. Over very long periods, the returns have been similar, but the path is different.

Some investors use a simple rule: hold a total stock market index fund (which is mostly U.S.) and an international index fund in a ratio like 70/30 or 60/40. Others buy a single "all-world" ETF that holds both U.S. and international stocks in one fund. Either approach works; the key is to pick something you'll stick with through market ups and downs.

Common mistakes to avoid

One mistake is buying too many overlapping international ETFs. If you own VXUS (total international), you don't need to also own IEMG (emerging markets) and IEUR (Europe) — you're just duplicating holdings and paying extra fees. Start with one broad international fund, and only add a second if you have a specific reason (like wanting extra emerging-market exposure).

Another mistake is panic-selling during a downturn. International markets can lag the U.S. for years, and it's tempting to sell when returns are disappointing. But selling locks in losses and leaves you out of the recovery. If you're uncomfortable with international holdings, reduce them before you buy — don't wait until they've dropped 20 percent.

A third mistake is chasing performance. You might read that emerging markets had a great year and buy an emerging-market ETF at the peak, only to watch it fall. Past performance doesn't predict future results. Decide on your allocation based on your goals and risk tolerance, then rebalance once a year rather than trading based on recent returns.

Frequently Asked Questions

Can I buy international ETFs in a Roth IRA?

Yes. A Roth IRA can hold any ETF available through your brokerage, including international funds. This is actually a smart place for international holdings because dividends and gains grow tax-free. You're limited to contributing $7,000 per year (or $8,000 if you're 50 or older), but once the money is in the account, there's no limit on growth.

What's the difference between an ETF and an international mutual fund?

Both hold baskets of foreign stocks, but ETFs trade throughout the day like stocks (price changes every minute), while mutual funds price once per day after the market closes. ETFs typically have lower fees and are more tax-efficient. For most investors, an ETF is the better choice, though some 401(k) plans offer only mutual funds.

Do I need to report international ETFs to the IRS?

If you hold international ETFs in a U.S. brokerage account, your broker reports the income and gains to the IRS on a 1099 form, just like domestic stocks. You report them on your tax return. You don't need to file additional forms unless you have over $10,000 in foreign financial accounts, which is rare for ETF investors.

What happens if a country's currency crashes?

If you own an unhedged international ETF and a country's currency falls sharply, your investment value drops. However, this is temporary — the currency may recover, or the companies themselves may become cheaper and more attractive to buyers. Over long holding periods, currency swings tend to average out. If you're worried about a specific country's currency, a hedged ETF removes that risk.

Should I buy international ETFs if I already own a total U.S. stock market fund?

A total U.S. stock market fund gives you broad U.S. exposure but no international diversification. Most advisors suggest adding international holdings (20 to 40 percent of your stock allocation) to reduce concentration risk. You can do this by buying a separate international ETF or by switching to an all-world ETF that includes both U.S. and international stocks.