For a U.S. investor, deciding whether to include non-U.S. stocks in a portfolio is an important consideration. Given the strong recent performance of U.S. markets, it can be tempting to conclude that it’s simply best to stick with what has worked. According to data compiled by Alpha Architect, many investors also feel more comfortable investing in their home country and in what is familiar. However, this preference—often referred to as home country bias—can create concentration risk and may reduce the effectiveness of a well-diversified portfolio. The United States represents about 60% of the global stock market. That means roughly 40% of the world’s equity opportunity set lies outside the U.S. Investing solely in U.S. stocks would substantially narrow an investor’s potential investment universe.
Looking at longer-term history helps provide perspective. Over the 55 years from 1970 through 2025, market leadership has shifted multiple times, even though U.S. stocks outperformed non-U.S. stocks overall. U.S. equities led during two extended periods—from 1989 through 2001 and from 2008 through 2024. Non-U.S. stocks outperformed from 1970 through 1988, from 2002 through 2007, and again in 2025 and early 2026. Over nearly six decades, overall U.S. and non-U.S. leadership has rotated on average every fourteen years, with some shorter-term shifts occurring within these longer cycles.
Importantly, U.S. and non-U.S. stocks do not move perfectly together. Over the 1970–2025 period, according to data from Bloomberg, the correlation between the two was below 0.70, indicating a diversification benefit when both are included in a portfolio. In my recent article on gold, I discussed how owning assets with low correlation is valuable in the context of portfolio construction since this may help reduce volatility, maximize risk-adjusted returns, and produce a smoother overall return profile.
Non-U.S. stocks also offer different exposure characteristics compared with U.S. equities. According to data from Bloomberg, at the end of 2025, the MSCI World ex USA Index traded at a meaningful valuation discount relative to the MSCI USA Index based on their price-to-earnings ratios. Sector composition also differs. In early 2026, information technology represented about one-third of the MSCI USA Index, while financials were the largest sector in the MSCI World ex USA Index. Company size is another distinction. In early 2026, the average market capitalization in the MSCI USA Index was over $100B, more than 3x the size of the average company in the MSCI World ex USA Index. These differences help diversify not only geographic exposure, but also sectors, business models, and industry dynamics.
Some investors argue that international exposure is unnecessary because many U.S. companies generate a significant portion of their revenue overseas—about 40% for the S&P 500, according to Apollo Global Management. However, research from Dimensional Fund Advisors indicates that U.S. companies with foreign revenue tend to move in line with the broader U.S. market when U.S. and international markets diverge. In other words, owning U.S. companies with global revenue does not provide the same diversification benefit as investing directly in non-U.S. stocks.
Average monthly returns when US and developed ex US stock returns have opposite signs, January 1979–December 2022
That said, international investing does involve additional risks. These may include currency fluctuations, geopolitical uncertainty, and differences in economic conditions, regulation, and market structure. These factors should be considered when evaluating the appropriate role of non-U.S. equities within a portfolio.
In closing, diversification remains a key principle of sound portfolio construction. Market leadership between U.S. and non-U.S. stocks has shifted repeatedly over time, and investing globally provides access to a broader opportunity set. A globally diversified approach may help reduce reliance on any single country, economic cycle, or set of market factors.
If you have questions or would like to discuss whether international exposure may align with your own strategy, your Howe & Rusling wealth manager is always available and ready to provide personalized guidance tailored to you.
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