Could International Stocks Be Your Portfolio’s Secret Weapon Against Risk?

After years of American stock market dominance, global equities beat U.S. stocks by about 10% in the first half of 2025—one of the widest gaps seen in decades.

While the S&P 500 still stands as the global benchmark for equities, this latest episode is a fresh reminder that market leadership rotates and that owning only domestic stocks can leave American investors dangerously concentrated.

Indeed, a well-diversified portfolio contains not only holdings across industry groups and asset classes, but also across geographies.

2025’s Performance Gap: A Lesson in Diversification

The U.S. stock market has lagged behind its global peers of late. Volatility from President Donald Trump's tariffs and slowing corporate earnings have all let the wind out of the S&P 500's sails.

As you can see below, many non-U.S. stocks have outpaced their U.S. peers by a double-digit margin through the first half of 2025, one of the largest gaps on record.

That leadership change has been reinforced by sentiment: Bank of America’s June Global Fund Manager Survey found 54% of professionals now expect international equities to be the best-performing asset class over the next five years, while only 23% picked U.S. stocks.

Related Stories

Understanding the Asian Financial Crisis: Causes, Effects, and Lessons

Understanding SEDOL Codes: A Guide to UK Stock Identification

How Much U.S. Is Too Much?

Meanwhile, investors tend to overweight stocks from their own country. Behavioral economists refer to the instinct to prefer domestic securities as “home bias,” and it remains prevalent in American retirement plans. A recent Plan Sponsor Council of America review of 3 million 401(k) participants found that the typical investor holds 82% of their equity holdings in U.S. stocks, with 17% of savers having zero foreign exposure.

That concentration can be a drag on performance: U.S. mega-cap tech companies dominate broad indexes like the S&P 500 and tend to trade at richer valuations than those in Europe or Asia—and have shown themselves to be vulnerable to tariff and antitrust shocks.

Meanwhile, many overseas markets carry lower average price-to-earnings ratios and benefit from different currencies, demographics, and commodity cycles.

Spreading investments across continents mitigates losses if one market stumbles, which is precisely why experts recommend allocating at least 20% to international stocks and bonds for full diversification.

How To Go Global

You don't need to open a foreign brokerage account or pick individual Thai banks and German automakers. A handful of broad funds usually does the job:

• Ex-U.S. international index funds/ETFs (e.g., Vanguard's Total International Stock Index Fund or VXUS ETF) hold thousands of developed and emerging-market companies in one low-cost share (and exclude American stocks).
• Country-specific ETFs let you target a single country—EWY for South Korea, FXI for China, or EWZ for Brazil—while still trading on U.S. exchanges. You can also find country-specific funds that focus specifically on growth vs. value, or large- vs. small-cap stocks.
• ADRs: If you want to own specific companies from around the world, American Depositary Receipts (ADRs) give you exposure to names like Nestlé (NSRGY) or Samsung (SSNLF) without needing a foreign brokerage account.

The Bottom Line

Global diversification is a risk-reduction tool, not a speculative punt. International stocks have sprinted ahead so far in 2025, and professional money managers think the advantage could persist. Meanwhile, everyday savers remain under-allocated abroad.

Shifting up to 20% of your stock investments into low-cost international funds realigns your portfolio with the world economy, introduces new sources of return, and lowers the chance that any single country—including the U.S.—could derail your long-term plans.