Diversification is a key principle in building a well-rounded investment portfolio. Investors have the potential to decrease risk and seize growth possibilities by diversifying their investments across various asset classes and geographical regions. One effective tool for diversification is investing in international ETFs (Exchange-Traded Funds). Within this article, we will examine the significance of diversification, emphasize the advantages of ETFs, and showcase a selection of the top ten international ETFs to contemplate for the year 2023.
Why ETFs are Good Options for Diversification:
Due to their numerous benefits, ETFs have become increasingly popular among investors. These investment instruments offer exposure to a wide range of diversified assets, typically mirroring a specific index. Here’s why ETFs are a great choice for diversification:
- Broad Market Exposure – International ETFs offer access to a wide range of markets, including developed and emerging economies worldwide. This broad exposure helps investors tap into various sectors, industries, and regions, spreading risk across multiple markets.
- Ease of Access and Liquidity – ETFs are traded on major stock exchanges, enabling investors to purchase and sell shares during regular trading hours. This liquidity provides flexibility and ensures that investors can easily adjust their positions.
- Cost Efficiency – Compared to actively managed funds, ETFs typically have lower expense ratios. This cost efficiency makes them an attractive option for long-term investors seeking to minimize expenses.
Best International ETFs to Consider for 2023
1. Vanguard FTSE Europe ETF (VGK):
The VGK tracks the FTSE Developed Europe All-Cap Index, providing exposure to large, mid, and small-cap stocks across Europe. It offers investors diversified access to companies in developed European economies.
2. iShares Core MSCI Total International Stock ETF (IXUS):
The objective of the IXUS is to replicate the performance of the MSCI ACWI ex-USA Investable Market Index. This ETF offers exposure to a broad range of stocks from both developed and emerging markets outside the United States.
3. Vanguard Total International Stock ETF (VXUS):
With the goal of mirroring the performance of the FTSE Global All Cap ex-US Index, the VXUS provides investors with access to stocks from developed and emerging markets, excluding the United States.
4. Dimensional Core Equity Market ETF (DFAI):
The DFAI ETF focuses on global equity markets and employs a systematic approach to stock selection. It aims to capture broad market exposure while considering factors such as company size, relative price, and profitability.
5. Schwab Emerging Markets Equity ETF (SCHE):
The SCHE tracks the FTSE Emerging Index, offering exposure to companies in emerging market economies. It provides diversification within the high-growth potential emerging markets segment.
6. Vanguard Total World Stock ETF Index Fund (VT):
The VT ETF aims to track the FTSE Global All Cap Index, encompassing stocks from both developed and emerging markets worldwide. It provides investors with broad exposure to global equities.
7. Vanguard FTSE All-World ex-US ETF (VEU):
The VEU seeks to replicate the FTSE All-World ex-US Index, representing the performance of large and mid-cap stocks from international markets, excluding the United States.
8. Invesco China Technology ETF (CQQQ):
The CQQQ ETF focuses on Chinese technology companies and tracks the AlphaShares China Technology Index. It provides exposure to high-growth potential technology companies in China.
9. iShares Core MSCI EAFE ETF (IEFA):
With the objective of mirroring the performance of the MSCI EAFE Index, the IEFA represents the stock performance of developed markets outside of North America, encompassing regions such as Europe, Asia, and Australasia.
10. SPDR Portfolio Europe ETF (SPEU):
The SPEU focuses on European equities and closely tracks the performance of the S&P Europe 350 Index. The SPEU offers investors the opportunity to gain exposure to a wide array of companies spanning multiple sectors within European markets.
Tips for Holding Multiple International ETFs:
When investing in multiple international ETFs, it’s essential to consider a few key tips to optimize your portfolio:
- Set Clear Investment Goals – Define your investment objectives, risk tolerance, and time horizon. By doing this, you can guarantee that the ETFs you choose align with your broader investment strategy.
- Diversify Across Regions and Asset Classes – Select ETFs that cover different regions, such as Europe, Asia, and emerging markets. Additionally, consider diversifying across various asset classes, including stocks, bonds, and sectors, to further spread risk.
- Understand Country and Sector Exposures – Study the underlying indexes of the ETFs to understand their country and sector allocations. This will provide insights into potential concentration risks and allow you to maintain a balanced portfolio.
- Regularly Rebalance – Periodically review your portfolio to rebalance your holdings. Over time, certain regions or sectors may outperform or underperform, leading to a deviation from your desired asset allocation. Rebalancing ensures that you maintain your desired risk and return profile.
- Keep an Eye on Currency Exposure: International ETFs may expose investors to fluctuations in foreign currencies. Monitor the currency exposures of your holdings and consider the impact of currency movements on your overall portfolio returns.
Diversify Your Portfolio with International ETFs
International ETFs are an excellent option for diversifying your investment portfolio and gaining exposure to global markets. The ten ETFs mentioned above represent some of the best choices for international diversification in 2023. However, it’s important to note that selecting the right ETFs will ultimately depend on your specific investment goals, risk tolerance, and preferences. It is essential to conduct thorough research, consider your overall investment strategy, and, if needed, consult with a financial advisor for guidance. By leveraging the benefits of international ETFs and employing a thoughtful approach to diversification, you can enhance the potential for long-term investment success while managing risk effectively.