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The S&P 500, a long-standing benchmark for US stock market performance, has seen its fair share of ups and downs. However, recently, a compelling alternative has emerged for investors seeking higher returns: international exchange-traded funds (ETFs). Several international ETFs are not only keeping pace but actively outperforming the S&P 500, offering a compelling case for diversification and potentially enhanced portfolio growth. This article delves into why this is happening, which international ETFs are leading the charge, and how you can strategically add this crucial exposure to your investment strategy.

Why International ETFs Are Outpacing the S&P 500

The US market, while robust, isn't the only game in town. Global economic growth is increasingly driven by emerging markets and developed economies outside the US. Several factors contribute to the superior performance of international ETFs compared to the S&P 500:

• Currency Fluctuations: A weakening dollar can boost the returns of international investments when converted back to USD. This positive currency effect can significantly impact overall returns, especially in years where the dollar experiences significant depreciation.

• Diverse Growth Opportunities: Emerging markets, such as those in Asia and Latin America, often exhibit faster growth rates than the mature US economy. These markets present unique investment opportunities that aren't replicated within the S&P 500. This includes exposure to sectors like technology, renewable energy, and consumer goods that are expanding rapidly in these regions.

• Less Correlation: International markets often show lower correlation with the US market. This means that when the S&P 500 experiences a downturn, international markets might remain relatively stable or even increase in value, providing a crucial hedge against risk. This reduced correlation is a key benefit of international diversification.

• Sectoral Diversification: International ETFs offer exposure to sectors and industries that may be underrepresented or absent in the S&P 500. This broader sectoral exposure contributes to a more robust and resilient portfolio.

Identifying Top-Performing International ETFs

Several international ETFs are currently demonstrating impressive performance against the S&P 500. It's important to note that past performance doesn't guarantee future results, and thorough research is crucial before investing. However, some leading contenders include:

• Vanguard FTSE Developed Markets ETF (VEA): This ETF tracks a broad index of developed market stocks outside the US, offering diversified exposure to Europe, Japan, and other developed economies.

• iShares Core MSCI Emerging Markets ETF (IEMG): For exposure to emerging markets, IEMG provides a diversified portfolio of companies from developing nations across the globe, including China, India, Brazil, and others.

• Schwab International Equity ETF (SCHF): This low-cost option provides exposure to a wide range of international stocks, offering a balanced approach to international diversification.

Note: Always check the expense ratios and fund holdings before investing in any ETF. Consider your personal risk tolerance and investment goals before making any investment decisions.

How to Add International ETF Exposure to Your Portfolio

Adding international exposure to your portfolio doesn't require a complete overhaul. A well-structured approach can seamlessly integrate these ETFs into your existing investment strategy:

• Start Small: Begin by allocating a small percentage (e.g., 10-20%) of your portfolio to international ETFs. This allows you to test the waters and gradually increase your allocation based on performance and comfort levels.

• Diversify Within International ETFs: Don't put all your international eggs in one basket. Consider a combination of developed and emerging market ETFs to achieve optimal diversification.

• Consider Your Risk Tolerance: Emerging markets generally carry higher risk than developed markets. Adjust your allocation accordingly, considering your overall risk profile.

• Dollar-Cost Averaging (DCA): Invest a fixed amount at regular intervals (e.g., monthly) rather than lump-sum investing. DCA helps mitigate the risk of investing a large sum at a market peak.

• Rebalance Regularly: Periodically rebalance your portfolio to maintain your desired asset allocation. This ensures you don't become overly concentrated in any particular asset class.

Risks Associated with International Investing

While international ETFs offer significant potential benefits, it's crucial to acknowledge the inherent risks:

• Currency Risk: Fluctuations in exchange rates can impact your returns. A weakening foreign currency can reduce your profits when converting back to your home currency.

• Political and Economic Instability: International markets are subject to political and economic uncertainties that can affect company performance and overall market volatility.

• Market Volatility: Emerging markets, in particular, can experience higher volatility than the US market.

Conclusion: Embrace Global Opportunities

International ETFs are proving to be a compelling addition to many investors' portfolios. By diversifying beyond the S&P 500, you can potentially enhance returns, mitigate risk, and gain exposure to a wider range of growth opportunities. Remember to conduct thorough research, understand the associated risks, and adjust your investment strategy to align with your individual financial goals and risk tolerance. Consider consulting with a financial advisor to personalize your investment plan and maximize the benefits of international diversification. Don't miss out on the potential of global markets – strategically integrate international ETFs into your investment strategy today and unlock new avenues for growth.