Recent analysis suggests that the lengthy dominance of U.S. stocks may be approaching a turning point. Over the past 15 years, U.S. equities have significantly outperformed their international counterparts, with research from Dodge & Cox indicating an astonishing 500% lead from 2010 to last year. The U.S. economy remains a formidable force globally; however, the current stock market valuation is nearing all-time highs, prompting concerns about a widening valuation gap between domestic and international stocks.
For most investors, diving into non-U.S. markets can pose challenges. This is where exchange-traded funds (ETFs) offer a practical solution. The Vanguard Total International Stock ETF (VXUS) provides exposure to a diverse selection of more than 8,400 non-U.S. stocks, making it an attractive option for those looking to enhance their portfolios with international assets.
The timing for investing in international stocks appears favorable. While the S&P 500 has surged by an impressive 66% over the past three years, non-U.S. stocks are starting to exhibit robust performance in 2023. The Vanguard ETF has notably risen by 24% since January, outpacing the S&P 500 by a remarkable 10 percentage points.
The meteoric rise of the S&P 500 can be largely attributed to the excitement surrounding artificial intelligence, particularly among major technology firms collectively referred to as the “Magnificent Seven.” However, the index now teeters near its highest valuation on record. Market fluctuations often occur based on investor sentiment and economic shifts, and it appears the tide may be turning away from U.S. stocks toward international options. With U.S. valuations at historic peaks and non-U.S. stocks more aligned with historical norms, the market dynamics are favoring a potential reallocation of investment.
Looking beyond the U.S., there are many notable companies making significant contributions to the global economy. The Vanguard Total International Stock ETF features top holdings that include widely recognized corporations such as Taiwan Semiconductor Manufacturing, Tencent Holdings, ASML Holding, Alibaba Group, and Samsung Electronics, among others. These companies play crucial roles in various sectors, including technology, healthcare, and consumer goods. Some of these key firms don’t list their shares on U.S. exchanges, making an ETF like VXUS a convenient avenue for investment.
In a sea of available ETFs, the Vanguard Total International Stock ETF stands out for several reasons. Vanguard is widely respected as a leading investment fund company with a long-standing reputation for integrity, and it prioritizes investor interests by maintaining a structure that mitigates conflicts. The ETF boasts a remarkably low expense ratio of just 0.05%, meaning investors can retain nearly all of their earnings. Furthermore, with a minimum investment requirement of only $1, this ETF is accessible to a wide range of investors.
While diversifying into international stocks is encouraged, it doesn’t suggest a need to abandon U.S. equities entirely. The performance of U.S. stocks has been historically strong, and they are likely to remain a cornerstone for building wealth. However, diversifying investments can help mitigate risks, and the Vanguard Total International Stock ETF may represent an effective strategy for investors looking to broaden their horizons beyond the U.S. market.
