Investing in International Stocks

Get a better understanding of what international stocks are and how you can
incorporate them into your trading or investing strategy.

On this page:

• Why invest in international stocks?

• Schwab's perspective
• Risks of international stocks
• International stocks FAQs
• Exploring your investment options
• How do I start investing globally?

Why invest in international stocks?

It's almost impossible to avoid international exposure in today’s globally interconnected
economy. With more than half the world's market capitalization now lying outside the United
States, international stocks present a wide range of opportunities simply unavailable with
domestic stocks. Many leading stock exchanges are based outside of the U.S., offering investors
potential to expand and diversify their portfolios with securities in both emerging and well-
established markets. Global diversification can help you manage risk and position your portfolio
for long-term growth.

Schwab's perspective
We believe a global perspective that incorporates portfolio allocations to U.S. and
international stock markets along with global benchmarks for performance are vital to
successful long-term investing.

A global perspective takes the decision about what country’s stocks to invest in and
refocuses it on seeking to invest in great ideas that span the stocks of many countries. It
requires measuring investment success differently and taking a long and broad view to
help manage risk and keep tracking toward goals. The right mix of assets for you and

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your goals should be based on your risk tolerance, cash flow needs, investing
experience and time horizon, among other factors.

Risks of international stocks

In addition to different trading regulations and protocol, international stocks also carry
their own unique risks that investors should consider.

• Currency fluctuation

While currency fluctuation can work in favor of the U.S. dollar, it’s always a variable
and investors should be prepared for favorable and unfavorable outcomes.
• Political instability

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 Investing in international stocks is investing in the people and governments where
the foreign shares are located. Political or economic events in a foreign company’s
home country may harm your investment.
• Regulatory changes

International stock exchanges have their own rules and regulations for participating
countries and organizations. Changes in governance and financial policies can
create limitations on the access rights of foreign investors.
• Taxation

Taxes on international investments are often taxed at different rates than domestic
holdings. Similar to regulatory changes, some foreign nations may also impose
additional taxation on foreign investors.

International stocks FAQs

Are international stocks more risky than U.S. stocks?

While international stocks are subject to geopolitical, regulatory, and currency risk, a foreign
security should not be judged solely because it is not a U.S. domestic product. Investors should
take multiple factors into consideration when considering investing in international stocks, such
as geographical location, level of development, and liquidity of the markets and complex tax
regimes. Additionally, U.S. domestic securities can be just as risky as some foreign ones.

How much international exposure should my portfolio have?

Taking a global perspective means incorporating both U.S. and international stocks in your
portfolio. The market place is truly global and when it comes to investing, geographical location
matters a lot less than it used to. Depending on your return objectives and risk tolerance, your
international allocation should be 5-25% of your total stock market investments and the
international weighting necessary for truly global exposure is likely to increase over time as
global trends become even more entrenched. Investing in international stocks still carries risks,
but if you limit your international exposure you may miss out on attractive growth opportunities
as well as the increased diversification that can help buffer your portfolio against market
downturn.

What is 'home bias' when considering investing in international stocks?

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Simply put, home bias (or 'home country bias') is the conscious or unconscious choice of
investors to invest the entirety or majority of their assets in domestic investment products – we're
inclined to believe in and root for the things that we know best. While this may be human nature,
home-country bias limits an investor's universe of available opportunities. Worse, it may not be
prudent given the nature of today's global markets: roughly half of all global companies are
based outside the United States, which corresponds to global gross domestic product ratios.
Get more information on why global diversification matters.

What is the difference between Developed Markets (DM), Emerging Markets (EM), and
Frontier Markets (FM)?
When investing in international stocks it is beneficial to understand the differences between
developed, emerging, and frontier markets to better comprehend the risks, potential, liquidity,
and stability of international investment products.

• Developed Markets (DM) are countries who are economically the most advanced – they have
highly developed capital markets, are well regulated with higher per capita income, and have
a large market capitalization and greater liquidity. They include, but are not limited to, such
countries as the U.S., Canada, the United Kingdom, Germany, Australia, and Japan.
• Emerging Markets (EM) are countries which are currently experiencing rapid economic and
household income growth as well as rapid industrialization. As opposed to developed
markets, they tend to have lower household incomes, economic development and reform
programs under way, less maturely functioning stock and bond markets and rules of conduct,
lower liquidity, and are undergoing structural changes such as modernization of
infrastructure and/or moving from a dependence on agriculture to manufacturing. Brazil,
Russia, India, and China are examples of some emerging markets.
• Frontier Markets (FM) are another subset of international investing which may become
future emerging markets. They tend to be even less developed, have higher levels of risk than
emerging markets, little market liquidity, and only marginally developed market systems.
Some markets considered frontier are Colombia, Indonesia, Turkey, and South Africa.

It is important to note that these are not fixed definitions; different financial bodies differentiate
between developed, emerging, and frontier markets using varying criteria and what one entity
might characterize as emerging could be considered developed by another.
Get more information about emerging and frontier markets.

What tax withholding rates apply for dividends of international stocks?

Dividends paid on foreign equities are generally subject to foreign tax withholding. These taxes
vary greatly depending on jurisdiction, residency, and account type and are governed by
applicable international tax treaties between the U.S. and the issuer's country of registration. In
certain circumstances, investors may be eligible for preferential rates which are lower than the
statutory rates applied by local jurisdictions.

https://www.schwab.com/stocks/understand-stocks/international