While most market coverage highlights familiar U.S. benchmarks such as the S&P 500 and the Dow Jones Industrial Average, this focus often obscures valuable opportunities abroad, representing a substantial segment of the global equity market.
Incorporating international equities can significantly enhance portfolio diversification.
As of year‑end 2025, approximately 30% of global equity market capitalization lay outside the United States, according to MSCI World Index data. Moreover, after a period of U.S. outperformance, 2025 witnessed a reversal: the MSCI EAFE Index, which measures developed markets excluding the U.S., posted a 31% gain, surpassing the S&P 500’s 18% return.
If you are considering whether international exposure can strengthen your portfolio, here are three compelling reasons to diversify globally.
Reduce Concentration Risk. Many investors have profited from the recent strength of U.S. equities, especially the outsized gains of a limited group of technology firms. However, when a market’s performance relies on a narrow set of contributors, portfolios become increasingly exposed to sector-specific volatility.
Adding international holdings broadens exposure across countries, industries, and economic environments. Global markets frequently emphasize distinct sectors and growth drivers, diminishing reliance on any single market’s conditions.
Diversification entails owning assets that react differently to economic factors such as inflation, interest rates, and growth trends.
Capture Global Growth Opportunities. Although the U.S. and other mature economies such as Japan or Germany typically exhibit steady, moderate growth, faster‑growing regions can present attractive long‑term prospects.
Since 2000, U.S. real GDP growth has averaged just above 2% annually.2 Emerging markets — including China, Taiwan, and South Korea — have historically expanded at a quicker pace, albeit with higher volatility. Incorporating international stocks, particularly from emerging markets, enables investors to benefit from economic cycles and structural growth opportunities that are less pronounced in the U.S. market.
Such a global mix can provide an additional engine of potential return to your portfolio, provided your risk tolerance and time horizon permit.
Improve Risk‑Adjusted Returns Over Time. Markets worldwide do not move in lockstep. When U.S. stocks underperform, overseas markets may be in a different phase of the cycle, helping to smooth overall portfolio performance.
International diversification enhances risk‑adjusted returns by mitigating the impact of localized downturns and spreading exposure across diverse economic environments.
Currency fluctuations also play a role; a weakening U.S. dollar can increase the value of overseas investments for U.S. investors. Although exchange rates are unpredictable, global exposure adds another layer of diversification and may help hedge against periods of dollar weakness.
Determining the Right Mix for Your Portfolio. International investments can be more volatile than U.S. stocks, especially during periods of heightened geopolitical tension, and currency trends may affect outcomes. Nonetheless, thoughtfully incorporating global exposure can strengthen overall diversification and improve long‑term investment strategy.
A financial advisor can help determine how international markets may complement existing holdings and construct a portfolio aligned with your goals, risk tolerance, and time horizon.
1Sources: MSCI Inc.; S&P Global. Reflects total returns for calendar year 2025.
2U.S. Bureau of Economic Analysis via FRED
