Many investors include foreign stocks or stock funds in a diversified portfolio. However, it may not make sense to treat “foreign stocks” as a single asset class.
Many investors have sub-categories for U.S. stocks such as small-cap and large-cap, growth and value, etc. The total value of foreign stocks equals the value of U.S. stocks, so why not build a diversified international portfolio, too? One strategy is to pick one international fund for long-term excellence and then select another as a complement.
If your favored foreign fund holds large-company stocks., add a foreign small-cap fund.
If your foreign fund holds growth stocks (technology companies), add one that owns value stocks (banks and oil companies.)
Before you invest in a foreign stock fund, check the holdings to see that they don’t overlap with stocks you own directly or through other funds.
Hold foreign stocks and funds in a taxable account so you can claim a credit against any tax withheld by a foreign government. Inside a tax-deferred retirement plan, the tax credit will be lost and you’ll wind up overpaying your taxes.