How to build an internationally diversified portfolio

Wherever you live, chances are your salary, your savings and even your home depend on the economy of a single country. When that country does well, everything does well. When it struggles, everything falls at the same time. Diversifying internationally is, in essence, not putting all your eggs in one basket… or in one country.

In this guide you'll see how to think about a global portfolio step by step, which mistakes to avoid and how to use the optimizer to test your ideas with real data.

Why diversify beyond your home country

The main reason isn't to "earn more" but to reduce the risk of everything falling at once. The world's economies don't move in lockstep: while one suffers through a political crisis, another may be growing thanks to technology or the price of its commodities.

Think of three typical situations:

• Someone who only invests in their home market inherits all of its local risks: inflation, policy changes, a weak currency.
• Someone in a commodity-driven market, such as Chile with copper or Canada with energy, suffers when those prices fall.
• Someone whose portfolio is all US tech depends on a handful of giant companies moving in the same direction.

In all three cases, adding assets from other regions — the United States, Europe, Asia, emerging markets — helps make sure one local problem doesn't decide the whole outcome.

Step 1: decide what the money is for

Before choosing assets, answer three questions:

1. When will you need it? If it's within two or three years, stocks probably aren't the right place, because they can fall a lot in a short time.
2. How big a drop could you take without selling in fear? An all-stock portfolio can fall 30% or more in a crisis. If that would make you panic-sell, you need more stability (bonds, gold or a smaller share in stocks).
3. Which currency will you spend that money in? If you'll use it in euros, pounds or pesos, the exchange rate matters as much as the assets' performance.

Step 2: choose the big building blocks

A global portfolio is usually built in blocks, from the broadest to the most specific:

Block	What it brings	Examples in the explorer
US stocks	The world's largest companies	S&P 500, Nasdaq-100
Other developed markets	Europe, Japan, Australia	Euro Stoxx 50, Nikkei
Emerging markets	Growth, more risk	China, India, Korea, Brazil
Latin America	Exposure to the region	Ibovespa, IPC, IPSA
Bonds	Stability	Treasury bond ETFs
Gold	A refuge in crises	Gold ETFs

You don't need all of them. But if you only have one, you're not diversified. In the explorer you can filter by region, country, sector and type to find candidates for each block.

Step 3: ETFs or individual stocks

There are two paths, and you can combine them:

• ETFs: with a single asset you buy hundreds of companies. A world ETF, an emerging-markets ETF and a bond ETF already form a solid base. They're ideal for getting started. Read more in country ETFs.
• Individual stocks: they let you pick specific companies, but each one carries its own risk. If you go this way, it's better to hold many, across different sectors and countries.

A common combination is a base of broad ETFs plus a smaller share in stocks you know and care about.

Step 4: look at how they move together

Here's the heart of diversification: what matters is not only how much each asset moves, but how much they move together. This is measured by correlation.

Two Brazilian bank stocks tend to rise and fall at the same time; holding both diversifies little. On the other hand, a Japan ETF and a Mexican stock can move quite differently: combining them lowers total risk.

When you calculate a portfolio in the optimizer, you'll see a correlation heatmap. Look for the light or reddish squares: those are the combinations that help diversify the most.