International Equities: Why the Rest of the World Belongs in Your Portfolio

I'm Andy Temte and welcome to Money Lessons! Join me every Saturday morning for bite-sized lessons that are designed to improve financial literacy around the world. Today is July 18, 2026.

Last week we untangled how a "free" stock trade actually gets paid for — payment for order flow, the quiet arrangement that turns your order into the product being sold. Today we do something different. We widen the map. We have spent this entire series inside American markets — American companies, listed on American exchanges, bought and sold in dollars. But the United States is not the whole story. A large share of the world's great companies trade somewhere else entirely, and today I want to make the case that they deserve a place in how you think about owning stocks.

Why Own the Rest of the World

So let's start with a number that surprises most people. If you added up the value of every publicly traded company on Earth, American companies would make up a little under two-thirds of the total — around 63 percent as of the middle of this year. That is an enormous share for a single country. But turn it around: more than a third of the world's stock market value sits outside the United States. If you own only American stocks, you hold no stake in any of those foreign companies.

There is a name for the tendency to invest at home and skip foreign markets entirely: home-country bias. It is the natural pull to invest mostly in the companies of your own country — the names you recognize, the businesses you pass every day, the market whose news you hear each morning. Investors everywhere do it, not just Americans. And it feels safe. But safe and familiar are not the same thing, and home-country bias quietly narrows your ownership down to the fortunes of a single economy.

That matters because of diversification, a word we have used before that refers to owning a mix of companies across different industries, so that no single one can sink you. Owning companies across different countries is the same idea, stretched across borders. Economies do not all move together. When one region is struggling, another may be thriving, and spreading your ownership across several of them softens the ride.

Over long stretches — a decade or more at a time — sometimes American stocks produce the higher returns, and sometimes international stocks do. For most of the years after the 2008 financial crisis, U.S. stocks handily outperformed the rest of the world. Then, in 2025, the pattern flipped. Stocks from developed international markets returned about 32 percent for the year, while U.S. stocks returned about 17 percent. Emerging markets did better still, near 34 percent. An investor who owned only American stocks in 2025 did fine — but missed the best returns of the year by a wide margin. No one can predict which part of the world will produce the highest returns in a given year, and that uncertainty is the whole argument for owning both American and international stocks.

How You'd Actually Own It

So how does an ordinary investor own the rest of the world without opening foreign bank accounts or learning a dozen tax codes? For most people, the answer is an index fund, or an exchange-traded fund — the ETF. Just as an S&P 500 fund buys you a slice of five hundred American companies in one trade, an international index fund buys you a slice of hundreds or thousands of companies spread across many countries — in one trade, in dollars, inside the brokerage account you already have. One purchase, and you are no longer betting on a single country.

There is a second way, for when you want to own one specific foreign company rather than a broad basket. It is called an American Depositary Receipt, or ADR. Here is how it works. A U.S. bank buys shares of a foreign company on that company's home exchange and holds them. The bank then issues receipts against those shares, and the receipts trade on American exchanges — the New York Stock Exchange or the Nasdaq — in U.S. dollars, during American market hours, through your ordinary account. The Chinese company Alibaba trades in New York this way. When you buy the ADR, you are buying a claim on real foreign shares sitting in a bank's custody, without ever touching a foreign market yourself.

A quick word on currency risk. When you own a foreign company, you are making two bets at once — one on the company, and one on its home currency against the dollar. If the company's shares climb but its home currency falls against the dollar, then when you sell the stock and convert the proceeds back into dollars, part of your gain is lost to the weaker exchange rate. For a single foreign stock in a single country, that currency bet is concentrated and can bite. For a fund holding companies across many countries, the currency exposure is spread across many currencies that do not all move the same way, which softens the effect — diversification at work again, this time across currencies rather than companies.

Developed vs. Emerging Markets

Now for a distinction I want to make sure you carry away from today, because the single word "international" hides it. Not all foreign markets carry the same risk. The world's stock markets split roughly into two groups.

The first is developed markets — the established, wealthy economies with mature, well-regulated stock markets, strong legal protections for investors, and stable institutions. Think of Japan, the United Kingdom, Germany, France, Switzerland, Australia, and Canada. The oldest benchmark for this group is the MSCI EAFE index, which stands for Europe, Australasia, and the Far East — a basket of stocks from developed markets outside the United States and Canada, tracked since 1969.

The second group is emerging markets — economies that are growing quickly and industrializing, but have not fully arrived. Examples include China, India, Brazil, Indonesia, and Malaysia. Their companies can grow faster than those in developed markets, which is the draw. But these markets are younger and less tested. Investor protections may be weaker, regulation thinner, politics less predictable, and the currency more prone to sharp swings. The risk profile is meaningfully higher, and that higher risk runs in both directions. As mentioned previously, in 2025, emerging markets returned around 34 percent, ahead of both the U.S. and developed international markets. In a bad year, they can fall just as steeply. Higher potential reward, higher risk — the same trade-off we have returned to all year, now carrying a passport.

Why does this matter to you? Because a fund labeled "international" might hold only developed markets, only emerging ones, or a blend, and those are genuinely different bets. Before you buy, it is worth knowing which one you are holding.

What This Means for You

So here is the practical takeaway. You do not need to become an expert in foreign markets to own stocks from around the world. A single broad international index fund gives you a stake in hundreds or thousands of foreign companies at once — one trade, many countries, in dollars, in the account you already have. And if you want a specific overseas company instead, an ADR lets you buy it on an American exchange without leaving home.

The deeper lesson is about home-country bias. It is natural to fill your portfolio with the companies you know best, and there is nothing wrong with keeping a healthy share of your money at home. But home-country bias becomes a problem when it is a default rather than a decision — when you own zero international stocks not because you weighed the choice and declined, but because it never came up. More than a third of the world's stock value sits beyond American borders, and in some years, as 2025 showed, that is where the strongest returns are. So make it deliberate: decide how much of your portfolio you want outside the United States. And when you do invest abroad, keep the difference between developed and emerging markets firmly in mind, because emerging markets ask you to accept a good deal more risk in exchange for their higher potential reward.

Next week, we step back and pull this whole equity journey together. We have spent months on what stocks are, how they trade, what they cost, and now where in the world to find them. The question we have not squarely asked is the biggest one: why own stocks at all? Next week, the long-run case for equity ownership — and why, over a lifetime, it has rewarded the patient investor.

Until next week... Grace. Dignity. Compassion.