When it comes to daily market news, most coverage focuses on familiar U.S. benchmarks like the S&P 500 or the Dow Jones Industrial Average. That emphasis can make it easy to overlook opportunities beyond our borders — but doing so can mean missing a meaningful portion of the global investing landscape. Certain international stocks can play an important role in portfolio diversification.
As of year‑end 2025, nearly 30% of global equity market value was found outside the United States, based on MSCI World Index data. And after a stretch in which U.S. stocks largely outperformed their overseas counterparts, 2025 brought a shift: the MSCI EAFE Index — which tracks developed markets outside the U.S. — delivered a 31% gain, well above the 18% return of the S&P 500.¹
If you’re wondering whether global exposure may strengthen your portfolio, here are three key reasons to consider diversifying internationally.
Reduce concentration risk. Many investors have benefited from the strength of U.S. stocks in recent years, particularly the exceptional performance of a relatively small group of technology‑oriented companies. However, when a market’s success is driven by a narrow set of contributors, portfolios may become increasingly vulnerable to shifts in those specific sectors.
Adding international holdings can help broaden your exposure across countries, industries, and economic environments. Global markets often emphasize different sectors or growth drivers, helping reduce reliance on a single market’s conditions. Diversification is not only about owning more investments — it’s about owning investments that respond differently to economic factors such as inflation, interest rates, or growth trends.
Capture global growth opportunities. While the U.S. and other mature economies like Japan or Germany often experience steady, moderate growth, faster‑growing regions can offer appealing long‑term potential. Since 2000, U.S. real GDP growth has averaged just above 2% annually.² Emerging markets, including countries such as China, Taiwan, and South Korea, have historically grown at a quicker pace, though they may experience greater volatility. By incorporating international stocks — especially those from emerging markets — investors may benefit from economic cycles and structural growth opportunities not present in the U.S. market. This global mix can bring an additional engine of potential return to your portfolio, should your risk tolerance and time horizon allow it.
Improve risk‑adjusted returns over time. Markets around the world don’t move in lockstep. When U.S. stocks underperform, overseas markets may be in a different phase of the cycle — helping smooth overall portfolio performance. International diversification can enhance risk‑adjusted returns by reducing the impact of localized downturns and spreading exposure across varied economic backdrops.
Currency movements also play a role. When the U.S. dollar weakens relative to other currencies, the value of overseas investments may rise for U.S. investors. While exchange rates can be 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 fluctuate more than U.S. stocks, particularly during times of heightened geopolitical tension, and currency trends may influence outcomes. Still, incorporating global exposure thoughtfully can help strengthen your overall diversification and improve your long‑term investment strategy. A financial advisor can help you determine how international markets may complement your existing holdings and build a portfolio aligned with your goals, risk tolerance, and time horizon.
¹ Sources: MSCI Inc.; S&P Global. Reflects total returns for calendar year 2025.
² U.S. Bureau of Economic Analysis via FRED®
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