Why International Stocks Still Belong in Your Portfolio

Hi, I’m Susan Dziubinski, co-host of The Morning Filter podcast. On a recent episode, I sat down with Morningstar’s director of personal finance and retirement planning Christine Benz to talk about portfolio planning, international-stock investing, bonds, and more. Our conversation took place on April 8. Here’s an excerpt.

What International Stocks Can Add to a Portfolio

Susan Dziubinski: Let’s talk about international stocks because that is one of your building blocks in the minimalist portfolios. It’s also something that The Morning Filter’s viewers and listeners have told us that they’d like to hear more about. First, from your perspective, what are international stocks really adding to a portfolio, Christine? Are they helping to damp risk? Is it just widening your opportunity set? Is there diversification value? What’s the value add?

Christine Benz: Certainly, if you were to look back over the past 15 or so years, you’d really have to squint to see the case for non-US in a portfolio. There has been a slight risk reduction benefit to including non-US in a portfolio. I think the broadening opportunity set is probably the best case for adding non-US exposure. When you think about a year like 2025, you see that the reversal of fortune for non-US can happen very, very quickly. I don’t necessarily think that this is something you want to try to time your way into. I tend to think that the global market cap is a good guide to how much to hold in non-US. It’s been running in the range of 60% US, 40% non-US. It sometimes goes up or down, but I think that’s a good benchmark for investors when setting their own allocations.

A key thing that I think investors get with non-US exposure is that we are talking about how the US market has come to be so heavily influenced by the technology names. With non-US, you’re getting much more of a value bias in terms of the sector exposures. You’re getting much more in financials, basic materials, and industrials—sectors that were once really big in the US market, but are less so today. You’re getting a nice sort of ballast for your US equity portfolio. You’re getting securities that will probably do well in an environment when value does well.

Should You Invest in Emerging-Market Stocks?

Dziubinski: Some sector diversification. Now, I know you’re not a huge fan of tilting or tactical allocations, but if someone’s looking at international markets today, would you say that developed markets are more attractive, or the way to lean? Are developing markets, or emerging markets, more attractive? What’s your take on that?

Benz: Here again, I would tend to want to be kind of neutral on this question. I certainly wouldn’t want to exclude emerging markets.

Yes, their returns have not been great relative to developed markets. Certainly, over the past 10 or so years, they’ve dramatically underperformed. When we look at correlations, and again, getting back to that research paper that we’ve been working on, the case for emerging markets as being a really great diversifier for US equities comes through loud and clear. If you have some sort of total-market international portfolio, you’ll get the developed markets. I think no matter what your approach to international, you should have emerging markets.

Dziubinski: Christine, let’s talk a little bit about emerging markets, exposure, and retirees specifically. Emerging markets do tend to be more volatile than developed markets. Would you recommend that retirees have less exposure to emerging markets or not necessarily?

Benz: Here again, I think I would keep it neutral. Emerging markets are like 25% of a total international index today. They’re just 10% of a total world index today. 10% is not going to make or break your plan. I don’t know that retirees should go out of their way to reduce their exposure to emerging markets. I think they can stand pat with that market cap weighting.

Why Investors Shouldn’t Hedge Their Currency Exposure

Dziubinski: What about currency hedging when it comes to international investing?

Benz: I’m a fan of, within your international-equity portfolio, maintaining unhedged exposure into whatever foreign currencies the securities are denominated in. It’s another source of diversification for investors. It can break one way or the other. In 2025, we saw non-US dollar currency diversification being very, very beneficial. There are other environments where that won’t be the case, but I would tend to think of it as another source of diversification, and equities are risky. It’s not going to add a huge additional layer of volatility to that sleeve of the portfolio. Fixed income, though, is where I would take an exception. In fact, I’m hearing a lot about non-dollar-denominated fixed-income investing. I’m less of a fan there. The reason is that the foreign currency fluctuations that you get with unhedged fixed income investments tend to make the bond act pretty equity-like, so you get swung around a lot by these foreign currency shifts, and that probably isn’t what you want as a bond investor.

You’re probably owning bonds to be a source of stability in your portfolio, or at least that’s why most of us own bonds. I think the case there for non-dollar-denominated bonds is a little less strong, in my opinion.

Is Active or Passive Better in International Markets?

Dziubinski: When it comes to international stocks and your model portfolios, do you tend to favor passive strategies internationally, active strategies, or a little bit of both?

Benz: For the most part, I do tend to gravitate to the total market indexes because it’s just a great one-and-done solution for international-equity exposure. Costs are super duper low. That’s a holding type that I come back to in a lot of these different portfolios. I do have, in some of the portfolios, more active exposures. Of course, there’d be more tracking error there. A fund that we’ve used as the core international holding is American Funds International Growth and Income IGAAX, which many people know of American Funds as being an advisor-sold firm, but you can buy some of these funds from the brokerage supermarkets without paying a sales charge. It’s a fund that the team likes a lot. I’ve also used Oakmark International Small Cap OAKEX in a couple of spots, a very volatile fund on a standalone basis, but one that does bring something to the party, especially for some of the more equity-heavy portfolios for the young accumulator types.

Dziubinski: Anything in particular from a sort of total international market fund?

Benz: So, iShares, BlackRock, Vanguard, Fidelity all run really great versions of those.

Dziubinski: Low costs.

Benz: Yeah. Just keep your eye on cost. Schwab does as well.

Watch Christine’s full appearance on The Morning Filter podcast.