How to Buy International ETFs and Why They Matter to Your Portfolio

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 shares of any stock — by placing an order during market hours and paying the share price. The fund itself owns the underlying securities, so you own a small piece of many foreign companies without having to pick individual stocks or open accounts abroad.

The mechanics are straightforward: open a brokerage account (or use one you already have), search for the ETF by its ticker symbol, enter the number of shares you want, and confirm the trade. Your broker settles the transaction and holds the shares in your account. You can sell whenever you want during market hours. The ETF manager handles all the currency conversion, dividend collection, and rebalancing behind the scenes.

Key Takeaways

• International ETFs trade on US exchanges during US market hours, so you buy them the same way you buy any US stock through a regular brokerage account.
• Currency risk means the value of your investment changes not just because foreign stock prices move, but because the dollar strengthens or weakens against other currencies.
• Developed-market ETFs (Europe, Japan, Australia) tend to be less volatile than emerging-market ETFs (Brazil, India, China), which affects both risk and potential returns.
• Expense ratios for international ETFs typically range from 0.05% to 0.50% per year, and lower costs compound into real savings over decades.
• Tax-advantaged accounts like IRAs and 401(k)s can hold international ETFs, and doing so avoids the foreign tax credit complications that arise in taxable accounts.

Developed markets versus emerging markets

International ETFs split into two broad categories based on the economic maturity of the countries they invest in. Developed-market ETFs focus on established economies like the United Kingdom, Germany, Japan, Canada, and Australia. These funds tend to hold larger, more stable companies with longer operating histories. They are less volatile than emerging-market funds, which means their prices swing less dramatically day to day, but they also typically offer lower growth potential.

Emerging-market ETFs invest in countries with faster-growing economies but less mature financial systems — places like Brazil, India, Mexico, South Korea, and China. Companies in these markets can grow faster, which can mean higher returns, but the ride is rougher. Currency swings hit harder, political risk is greater, and individual company failures can have outsized effects on the fund's value. A single emerging-market ETF can swing 5% or more in a week; a developed-market ETF might move 2%.

Many investors hold both. A common approach is to put 70% of international holdings in developed markets and 30% in emerging markets, adjusting based on your comfort with volatility and how long you plan to hold the investment.

Currency risk and how it affects your returns

When you own an international ETF, you are exposed to currency risk — the risk that the US dollar will strengthen or weaken against the currencies of the countries in the fund. If you buy a European ETF and the euro falls against the dollar, your investment loses value even if the underlying European stocks stay flat. The reverse is also true: if the euro rises, your investment gains value from currency movement alone.

This risk is real but not always bad. Over long periods, currency movements tend to even out, and many investors view currency diversification as a benefit rather than a drawback — it means your portfolio is not entirely dependent on US dollar strength. However, if you are uncomfortable with this volatility, some ETFs offer currency-hedged versions that use financial instruments to lock in an exchange rate and remove most currency fluctuation. These hedged versions typically cost slightly more (higher expense ratios) because the fund manager has to maintain the hedge.

For most long-term investors, the unhedged version makes sense. You are already diversifying across countries and industries; the currency movement is part of that diversification. But if you are nearing retirement and want to reduce volatility, a hedged international ETF can smooth out the ride.

Finding and comparing international ETF options

Your brokerage's research tools let you screen for international ETFs by region, market type, and asset class. Start by deciding what you want: developed markets, emerging markets, or a blend. Then look at three concrete numbers: the expense ratio (the annual cost as a percentage of assets), the fund size (larger funds are usually more liquid and stable), and the holdings (what countries and sectors the fund actually owns).

Expense ratios for international ETFs typically range from 0.05% to 0.50% per year. A 0.10% ratio means you pay $10 per year for every $10,000 invested. Over 30 years, the difference between a 0.10% fund and a 0.50% fund compounds into thousands of dollars in extra returns, so lower costs matter. Compare funds with similar geographic focus — a developed-market Europe fund should be compared to other developed-market Europe funds, not to an emerging-market fund.

Your brokerage's fact sheet for each ETF shows the top 10 holdings, the countries represented, and the sector breakdown. This tells you whether the fund is truly diversified or concentrated in a few large companies. A fund that is 30% in one country is riskier than one spread across many countries.

Tax treatment in regular and retirement accounts

International ETFs held in a taxable brokerage account trigger a tax complication called the foreign tax credit. Many countries tax dividends paid to foreign investors. The ETF collects these taxes, but you can claim a credit on your US tax return for taxes paid abroad. This is not a disaster, but it adds complexity to your tax filing and may require you to file additional forms (Form 1118 if your foreign taxes exceed a certain threshold).

The simpler route is to hold international ETFs inside a tax-advantaged account — an IRA, Roth IRA, or 401(k). Inside these accounts, you do not owe US tax on dividends or gains until you withdraw (or never, in the case of a Roth). The foreign tax credit rules do not apply, so your tax filing stays straightforward. If you have room in an IRA or 401(k), international ETFs belong there rather than in a taxable account.

If you do hold international ETFs in a taxable account, keep records of the foreign taxes paid. Your brokerage will report this information on your year-end tax statement, and you will need it to file correctly.

Building a diversified portfolio with international ETFs

International holdings should be part of a larger portfolio, not the whole thing. A common framework for a diversified investor is roughly 60% US stocks, 30% international stocks, and 10% bonds. Within the international portion, you might split it 70% developed markets and 30% emerging markets. This is not a rule — your actual split depends on your age, risk tolerance, and time horizon — but it shows how international ETFs fit into the bigger picture.

One way to build this is to buy a single total international stock ETF that already holds both developed and emerging markets in a balanced mix. This is simpler than buying two separate funds and rebalancing them yourself. Examples include funds that track the MSCI EAFE index (developed markets) or the MSCI Emerging Markets index, though you should verify the exact holdings and expense ratio of any fund you are considering.

Another approach is to buy separate developed-market and emerging-market ETFs and set your own allocation. This gives you more control but requires you to rebalance occasionally — selling the portion that has grown too large and buying the portion that has shrunk. Most investors rebalance once a year or when one allocation drifts more than 5% from target.

How to place your first international ETF trade

Open your brokerage account (or log into an existing one) and navigate to the research or search section. Type the ETF's ticker symbol — for example, VXUS for Vanguard Total International Stock ETF or VWO for Vanguard FTSE Emerging Markets ETF. The search returns the fund's fact sheet, which shows the expense ratio, holdings, performance history, and other details.

Click "Buy" or "Trade" and enter the number of shares you want. You can buy fractional shares on most modern brokerages, so you do not need to have exactly $100 or $1,000 — you can invest any dollar amount. Review the order (ticker, number of shares, total cost), confirm it is correct, and submit. The trade executes during market hours (9:30 a.m. to 4 p.m. Eastern Time on weekdays when US markets are open). Your brokerage settles the trade within two business days, and the shares appear in your account.

After that, you own the ETF. You can hold it indefinitely, add to it over time, or sell it whenever you want. You will receive dividends automatically (either reinvested or paid in cash, depending on your account settings), and you can track the value in your brokerage dashboard.

Frequently Asked Questions

Do I need a special account to buy international ETFs?

No. Any regular brokerage account works. You do not need a special international trading account or permission from your broker. If you can buy US stocks, you can buy international ETFs. They trade on US exchanges in US dollars, so the process is identical.

What is the difference between an ETF and an international mutual fund?

Both hold baskets of foreign stocks, but ETFs trade throughout the day like stocks (so you see real-time prices), while mutual funds trade once per day at the closing price. ETFs typically have lower expense ratios and are more tax-efficient in taxable accounts. For most investors, an ETF is the better choice.

Can currency hedging protect me from losing money?

Currency hedging removes currency risk but does not protect you from stock market risk. If the foreign stocks in the fund fall 10%, your hedged ETF will also fall roughly 10%, regardless of currency movements. Hedging only smooths out the currency swings on top of that.

How often should I rebalance my international ETF holdings?

Once a year is typical. If you own separate developed and emerging market ETFs, check whether one has grown more than 5% beyond your target allocation. If it has, sell some of the larger position and buy the smaller one to bring them back in line. This locks in gains and keeps your risk level consistent.

Are international ETFs riskier than US ETFs?

Emerging-market ETFs are generally riskier than US or developed-market ETFs because of currency swings, political uncertainty, and less mature financial systems. Developed-market ETFs are comparable in risk to US large-cap ETFs. Over long periods, the extra risk of emerging markets has historically been offset by higher returns, but past performance does not may provide future results.