Is Now the Time to Add an International ETF to Your Portfolio?

It's hard not to bet on the American economy. Just look at the S&P 500 index's stellar performance. In the past decade, the benchmark has produced a total return of 324% (as of June 23), which translates to a compound annual gain of 15.5%.

The Magnificent Seven group deserves credit for driving the overall index. Nvidia, Apple, and Microsoft are symbols of the U.S.'s tech dominance. You might find it easy to buy even more shares of these businesses.

There's a chance that your portfolio could be too exposed to the S&P 500, however. Perhaps it's time to think about expanding your geographic reach. Is now the time to buy an international exchange-traded fund (ETF)?

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Another way to diversify

When it comes to building a diversified portfolio, investors probably think most about what industries their companies operate in or what end customers they serve. While it's definitely important to ensure there isn't too much reliance on any specific corner of the stock market, it's also worth considering how much geographic diversity there is. This might be an overlooked variable.

In today's environment, there are valid reasons to consider buying an international ETF. You might be worried about the S&P 500 index's valuation, as its cyclically adjusted price-to-earnings (CAPE) ratio is at a level not seen since the dot-com bubble. Heightened geopolitical conflict, as well as stringent U.S. trade policy, might negatively affect capital flows to the country.

Finally, there's the rise of artificial intelligence. This technology is increasingly viewed as a strategic priority for some nations, so they might be inclined to restrict breakthroughs from leaving their borders.

Owning the top non-U.S. companies

You've decided that it's a smart idea to invest 5% of your portfolio in an international ETF. One of the best choices is the Vanguard Total International Stock ETF (NASDAQ: VXUS). Vanguard is a highly respected asset management firm with trillions of dollars in client assets and a history of increasing access to the stock market for average investors. This ETF comes with an extremely low expense ratio of 0.05%.

In the past 12 months, the Vanguard Total International Stock ETF has generated a total return of 34.5%. This comes up ahead of the S&P 500 index.

Investors will immediately build exposure to equities in Japan, Taiwan, and the U.K., the top countries that are represented. The three biggest positions are Taiwan Semiconductor Manufacturing, Samsung Electronics, and SK Hynix. Many U.S. investors probably don't own these companies, which makes the Vanguard Total International Stock ETF worth considering right now.

Neil Patel has positions in Vanguard Total International Stock ETF. The Motley Fool has positions in and recommends Apple, Microsoft, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.