Investment abroad is very much like traveling abroad: fear of the unknown prohibits many people from valuable enrichment. But what many people don’t realize is that over half of the world’s market capitalization is made up of non-US stock. In other words, if you only invest domestically, you are missing out on half of the world’s innovation.

To that end, let me disabuse you of the notion that international diversification means shaky investments in third world countries. Here are just a few of the top holdings for Vanguard’s Total International Stock ETF:

Royal Dutch Shell (Netherlands): oil and gas “supermajor” and currently the fifth largest company in the world
Nestle (Switzerland): largest food manufacturer in the world
Novartis (Switzerland): one of the largest pharmaceutical companies in the world
Samsung (South Korea): multinational conglomerate that includes Samsung Electronics, which is one of the world’s largest tech companies
Toyota (Japan): one of the largest automotive manufacturers in the world
HSBC (United Kingdom): the world’s sixth largest bank.

These are not exactly rinky dink operations. And although the immediate assumption is that international investment creates greater risk, the truth is the opposite. As the saying goes, don’t put all your eggs in one basket, so if you are only invested in US stock, you are in just one basket, even if you’re invested across a spectrum of industries.

Essentially, international investment adds another layer of diversification. Non-US companies in Europe and Asia experience different economic and market forces, so there is not a perfect correlation between US and non-US market returns. So when things are not going well here in the US, your portfolio will be can be tempered by developed markets abroad.

In fact, over the past several decades, investors with a mix of US and non-US securities would have experienced about the same returns with much lower volatility. A Vanguard study showed that from 1980 to 2008, a 30% allocation to non-US equities would have provided the most volatility reduction and, consequently, the greatest diversification benefit.

The amount of your portfolio allocated to international equities is based on a variety of factors. But it should at least play some role in your long-term investment strategy.

Josh Norris is an Investment Advisory Representative of LeFleur Financial. Josh can be reached at josh@LeFleurFinancial.com.