A Weaker Dollar Spurs International Investing
How much international stock exposure should you have? The answer depends on where you may wish to retire, and current valuations for international currencies.
This year, in 2025, international developed market investments have trended up markedly after many years of near doldrums. The rise in developed markets stock valuations has coincided in recent months with a decline in US dollar purchasing power against major currencies.
However, in third quarter 2025, current rates have swung back to the dollar’s favor, in a trend that could confirm itself over ensuing months. The question then arises about whether gains in international stocks derive from actual outperformance and relative risk/return metrics, or a falling dollar value against the currencies those stocks are valued in.
If your retirement plans include living abroad, then you might wish to investigate more closely how the currency of your retiree destination holds up against the US Dollar. To hedge your bet, you may wish more exposure to that currency over time, in the form of stocks or savings accounts, but keep in mind that returns may not pace with those for the S&P 500 index. Also, differing tax rates can factor in to how you make these comparisons, so schedule a talk with your CPA before deciding that living abroad is the right decision for you. There are also additional reporting requirements for foreign accounts and the risk of taxation in two countries for any income or gains, depending on whether you reside in the foreign country and qualify for a partial exclusion from US taxation.
If your aim is simply to diversify and to grow your assets, then pay attention to the underlying composition of international and emerging markets indexes against their US counterparts. In emerging markets, for instance materials and mining can be important revenue sources for these countries where these industries are located. If the price of gold and uranium is rising on world markets, then the index values for the stock markets concentrated in materials can also rise.
While international investing this year has been very profitable for US investors, international markets can be more volatile than those in the US. The major growth engine in the US market indexes is often the tech sector. In international markets, growth may be driven by the materials, energy or finance sectors, leading to wider swings if conditions are unfavorable for these industries.
Whether you wish to have zero international market exposure or the dutiful 20 percent weight recommended by moderate investor risk profile models, check in with your advisor about whether your income needs are met by these goals. Also review the likelihood for volatility, especially for gold centered economies.
U.S. vs World Volatility
Data shows the global market is less volatile than the U.S. market alone.
Intuitively, this makes sense. Think of it this way. If you had a lot of stock in your employer’s company, would you want 80% of your net worth tied up in that stock? No, you’d risk too much. What if the company tanked, went under, or severely declined in value? You would probably realize that you needed to overcome your preference for your company’s stock because you know the company so well.
So why would you tie 80% of your net worth to the U.S. economy by having a bias for U.S. stocks? Just as one stock vs. a diversified fund is a volatility risk, one country vs. the world is a volatility risk. Political upheaval, inflation, natural disasters, debt, and other country-specific variables all can impact a country’s stock market performance and currency valuation.
Though the dollar was weakening earlier against major trading power currencies this year, it recently perked up. See charts on the dollar vs. the Euro, for instance, at the link below.
However, if you are truly concerned about a long-term decline of the dollar vs. other currencies then you could decide to manage your returns with greater weight to international securities and to precious metals like gold. Keep in mind that currency linked ETFs and gold ETFs usually pay no dividends, so you are really betting on their continued appreciation against dollar denominated assets.
Disclosures:
International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
