Monday, August 4, 2025

Rethinking Global Exposure: How Much "International" Is Already in Your U.S. Stocks?

If you invest in three broad index funds - say, one for U.S. stocks, one for foreign stocks, and one for U.S. bonds - you’ve already embraced simplicity and diversification. But here’s a twist: did you know that nearly 30-40% of the revenue generated by S&P 500 companies comes from outside the United States?

From tech giants like Apple and Microsoft selling to global markets, to industrial firms navigating international supply chains, many U.S.-listed companies are anything but domestically confined. This raises a question that savvy investors are starting to ask: Should you factor this foreign revenue as part of your international allocation?

Let’s unpack it.

🌍 The Hidden Global Footprint in U.S. Stocks

While your U.S. index fund (like one tracking the S&P 500) is based on domestic listings, the companies within it often operate on a global scale. For example:

  • Information Technology sector: ~59% of revenue from abroad

  • Materials: ~47%

  • Industrials: ~32%

  • Utilities: Just ~2%

Clearly, not all sectors are created equal when it comes to foreign exposure.

So what does this mean for your portfolio?

🔄 Should You Adjust Your Allocation?

Possibly. Imagine your target allocation is:

  • 60% U.S. stocks

  • 30% international stocks or 33.33% of total stocks (30%/90%)

  • 10% U.S. bonds

If 30% of your U.S. stock fund’s revenue comes from non-U.S. sources, your “real” international exposure might look like this:

  • Implicit exposure via U.S. stocks: 60% × 30% = 18%

  • Direct exposure from international fund: 30%

  • Total effective international exposure: 48%

This translates to an effective international exposure of 53% of your overall stock allocation (48%/90%). This may be in line with your goals or more than you intended.

As a point of comparison, the FTSE Global All Cap Index - covering approximately 7,400 companies across 47 countries - allocates around 58-60% to U.S. stocks, with the remaining 40-42% representing international equities, including both developed and emerging markets. If you consider the implicit exposure via U.S. stocks, the index's effective international exposure is 58-60%.

Some investors use this insight to adjust their direct international allocation, depending on their implicit exposure via U.S. stock funds.

🧮 Quick Tip to Rebalance

Here’s a fast method:

  1. Estimate your U.S. fund's foreign revenue share (e.g., 30%)

  2. Multiply that by its portfolio weight

  3. Add it to your direct international allocation

  4. Adjust to hit your desired global exposure

📌 Example: Let’s say that you have 60% of your portfolio in U.S. stocks and you want 30% international exposure. You already have 18% international exposure from U.S. stocks’ foreign revenue (60% × 30%). Then, you may only need 12% in direct international holdings. If you want 40% international exposure, you may need 22% in direct international holdings.

🧠 Why It’s Not a Perfect Substitute

Don’t ditch your international fund entirely. Revenue abroad doesn’t offer everything: foreign currency exposure, different regulatory environments, access to emerging markets, and local sector opportunities.

Think of your U.S. stocks as giving you indirect global participation - while your international fund adds true global diversity.


Bottom line: Use foreign revenue exposure as a tool for smarter allocation - but keep direct international investments for genuine global reach. It’s about refining your balance, not replacing it.


Disclaimer: This article is not intended to be investment advice. Consult a duly licensed professional for investment advice. The contents of this article are for educational purposes only and do not constitute financial, accounting, tax, or legal advice. Past performance is no guarantee of future results.


Wednesday, March 26, 2025

The Stock Market has (fill in the blank). What should I do now?

I often see this or similar questions posted on popular online investing and personal finance forums.

“The stock market has gone up (or down) a lot lately. What should I do now?” or “International stocks have not done much in the last 10 years. What should I do with them?” or "Is the recession coming? If so, what should I do?".


In most cases, the right answer to such questions may be “Do nothing”.


When such a question comes up in your mind, you do not need to rush to action based on a guess, a hunch or friend’s or expert’s recommendation. Take a deep breath and follow these steps to make your own rules-based decision, knowing that this strategy has always worked for long-term investors.

Step 1: Determine your Target Asset Allocation

Hopefully, you have already completed this step before starting your investing journey. If you have not, see the following post for details: 

Using Vanguard Investor Questionnaire to determine your asset allocation


Note that this is an important prerequisite for this strategy to work.

Step 2: Determine your current Asset Allocation

If you have your accounts at Vanguard, you can use their Portfolio Watch tool to see your current asset allocation. The following post explains the Portfolio Watch tool in some detail:

Using Vanguard’s Portfolio Watch and Portfolio Tester for Rebalancing


Be sure to include your external (non-Vanguard) accounts in the Portfolio Watch as well. The above post explains how to do this.


Empower Personal Dashboard is another free tool that offers a streamlined way to view all your investment accounts in one place, giving you a clear picture of your overall asset allocation. For more details, just click the link above and explore the FAQ section at the bottom of the page.

Step 3: Rebalance (if necessary)

Lastly, if your actual allocation differs from your target allocation significantly (say, by 5 percentage points), it may be time to rebalance. Again, if you have your accounts at Vanguard, you can use their Portfolio Tester tool to help with rebalancing. The post mentioned in the Step 2 above explains how to use the Portfolio Tester tool.


If you find that there is no significant difference between your target and actual allocations, no action is necessary. However, if the difference between them makes you uncomfortable, it is time to rebalance for peace of mind.


Related:


Asset Allocation, Dollar Cost Averaging and Rebalancing - The Ultimate “Antifragile” Investment Strategy?


Improve Long-term After-tax Return on 3-fund Portfolio using Asset Location


3 ways to take advantage of a market decline


Disclaimer: This article is not intended to be investment advice. Consult a duly licensed professional for investment advice. The contents of this article are for educational purposes only and do not constitute financial, accounting, tax, or legal advice. Past performance is no guarantee of future results.