■ Why the Best International ETF in 2023 Might Be Riskier Than You Think

The Illusion of Safety in Familiarity

Investors commonly hold a deeply ingrained assumption that the best international ETF, especially one highly rated or popular in 2023, inherently provides safer, more predictable returns compared to other investment options. This belief stems primarily from the idea that ETFs, by nature, diversify risks across numerous stocks, sectors, and economies. However, this assumption could be silently damaging investors’ portfolios by blinding them to underlying risks. International ETFs, even those labeled as the best international ETF, are not immune to volatility or geopolitical uncertainties. Indeed, the perceived security often attached to these instruments may inadvertently cause investors to overlook critical indicators of risk and potentially harmful market shifts, leading them to underestimate potential volatility and downside scenarios.

How We Came to Trust ETFs Blindly

The widespread trust in ETFs didn’t develop overnight. Since the inception of ETFs in the early 1990s, their transparent structure, low fees, and ease of trade have steadily built their reputation as a reliable and dependable investment vehicle. The 2008 financial crisis further solidified ETFs’ popularity as investors sought diversified, liquid, and low-cost solutions to manage risk. Moreover, aggressive marketing and media coverage, emphasizing the ETF’s inherent diversification and convenience, have shaped investor psychology to favor these products. Consequently, ETFs, particularly those labeled as the “best international ETF,” have become synonymous in investors’ minds with financial prudence and long-term stability. This powerful narrative continues to shape the collective investment consciousness, making it difficult to critically analyze the potential risks embedded in even the most highly regarded international ETFs.

Evidence That Challenges Conventional Wisdom

While ETFs undoubtedly offer significant advantages, unquestioned reliance on their perceived safety overlooks data-driven realities. For example, analyses show that even the best international ETF is susceptible to significant volatility stemming from unexpected global events. A recent study by Morningstar suggested that international ETFs, despite their diversification, still experience sharp drawdowns during global economic downturns, geopolitical crises, or currency fluctuations. For instance, during geopolitical uncertainties such as the Ukraine crisis or rising US-China trade tensions, even the best international ETF categories have demonstrated increased volatility and temporary sharp declines. Additionally, according to a Vanguard report, the correlation between international ETFs and domestic markets sometimes spikes unexpectedly during crises, reducing their effectiveness as portfolio diversifiers precisely when investors need diversification most. This data clearly challenges the widespread notion that international ETFs inherently shield investors from risk.

Hidden Consequences of Complacent Investment Strategies

The hidden consequence of blindly trusting the perceived safety of the best international ETF is investor complacency. Investors lulled into a false sense of security often neglect necessary due diligence, risk assessment, and portfolio rebalancing. When market turbulence strikes, unprepared investors may panic, sell at the wrong time, or abandon their long-term investment strategies altogether. Ironically, this complacency can amplify the very risks investors sought to mitigate by investing in ETFs in the first place. Furthermore, the misunderstanding of international ETFs’ risk profiles may lead to inappropriate asset allocation, resulting in portfolios disproportionately exposed to international market volatility. This misallocation can significantly harm investors’ long-term financial goals, undermining the very benefits ETFs are designed to provide.

Embracing a More Informed Approach

Rather than blindly trusting the label “best international ETF,” investors should adopt a more informed, proactive approach. First, investors should regularly reassess their ETF holdings, not merely based on past performance or popularity rankings, but by thoroughly understanding the underlying assets, regional exposures, and currency risks. Rigorous research and education are key to understanding the true risk-return profiles of international ETFs. Second, investors should diversify not only across asset classes but also across different ETF providers and strategies. Employing multiple international ETFs—each with unique exposures, methodologies, and investment theses—can significantly reduce portfolio vulnerability to specific regional or sectoral shocks. Finally, investors should maintain a long-term investment outlook, periodically reviewing their asset allocation and rebalancing portfolios to align with their risk tolerance and investment objectives. Embracing this disciplined and educated approach ensures that investors can fully benefit from the genuine strengths of ETFs while effectively managing potential risks.

In conclusion, the best international ETF in 2023, although undoubtedly a valuable investment tool, should not be mistaken for a risk-free guarantee. Investors must challenge popular assumptions, acknowledge the inherent risks, and adopt informed and proactive investment strategies. ETFs are powerful tools, but only if investors wield them wisely, thoughtfully, and with eyes wide open to their true risk and reward profiles.