How This International ETF Could Complement a U.S.-Heavy Portfolio
Key Points
Over the past decade, U.S. stocks have dominated international stocks in terms of both earnings growth and total returns.
In 2026, international earnings growth is expected to be relatively comparable to that of the United States.
Given much more attractive valuations, now could be the time to reconsider foreign stocks.
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Under normal circumstances, U.S. investors maintain a home bias. People generally want to invest in what they know. That means they focus heavily on U.S. ETFs, such as the Vanguard S&P 500 ETF (NYSEMKT: VOO) and the Vanguard Total Stock Market ETF (NYSEMKT: VTI).
They're told they should have international stocks in their portfolio, but many avoid the overseas market altogether. Total returns over the past decade have made the case for international investing that much harder given how that group has underperformed.
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The past year, however, has been a good reminder about why diversification still matters. No longer are mega-cap growth and tech driving the market. Today, it's value, small-caps, defensive equities, and, yes, international stocks.
If your portfolio is still U.S.-heavy, here's the case for why the Vanguard Total International Stock ETF (NASDAQ: VXUS) deserves a good, long look.
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What is the Vanguard Total International Stock ETF?
This ETF tracks the FTSE Global All Cap ex-US Index, which is a basket of more than 8,000 stocks issued by companies in developed and emerging markets outside of the United States. With an expense ratio of just 0.05%, it's one of the cheapest and most comprehensive ways to invest internationally.
That means there's an incredible investing opportunity outside of the United States. In recent years, S&P 500 companies have delivered better earnings growth and better stock performance than international equities. However, that tends to go in cycles over time. When you add in geopolitical and valuation considerations, international stocks can have long periods of outperformance.
Why the time might be now for international stocks
One of the long-term arguments for investing internationally is that foreign stocks are usually cheaper than the S&P 500. But without the earnings growth story to back it up, a lot of that value has remained unlocked.
Today, international stocks might finally get that growth-plus-value narrative.
In 2026, S&P 500 earnings growth is expected to be right around 13%. In non-U.S. developed markets, forecasts call for 9% growth, but emerging markets are expected to lead the way with a 17% earnings growth rate.
Even if international earnings growth comes close to what we see in the U.S. in 2026, the deep value of foreign stocks (the Vanguard Total International Stock ETF trades at a price/earnings (P/E) ratio of 17.5 compared to 28.2 for the S&P 500) could make them a much more attractive option going forward.
Plus, don't discount the idea that U.S. and international markets can excel at different times and in different cycles. Pairing the two can actually reduce overall portfolio risk.
A portfolio of only U.S. stocks can make you feel better, but one built on global stocks can make it more resilient for the long run.
Should you buy stock in Vanguard Total International Stock ETF right now?
Before you buy stock in Vanguard Total International Stock ETF, consider this:
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David Dierking has positions in Vanguard Total International Stock ETF and Vanguard Total Stock Market ETF. The Motley Fool has positions in and recommends Vanguard S&P 500 ETF, Vanguard Total International Stock ETF, and Vanguard Total Stock Market ETF. The Motley Fool has a disclosure policy.
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