The past fifteen years have been phenomenal for U.S. stocks. They've outperformed international stocks by close to 200%. Unfortunately, no one can predict when international stocks will outperform U.S. stocks, or vice-versa. There have been many periods over the last 50 years when international stocks have drastically outperformed U.S. stocks. Most notably, there was the period in the mid-to-late 1980's when international stocks outperformed U.S stocks by more than 300%.
Since we don't know when international stocks will outperform U.S. stocks again, it is beneficial to diversify and have exposure to global markets. After all, Nobel prize laureate Harry Markowitz famously said that diversification is the only free lunch in investing. He meant that diversification is the only thing an investor can really control to possibly increase expected returns and decrease overall risk.
Investing in global stocks provides exposure to many countries, sectors, industries, currencies, and cultures. International stocks account for approximately 40% of the global stock market. While both U.S. and non-U.S. equities offer the potential to earn positive expected returns in the long run, they can perform quite differently over shorter periods of time. Clearly, it may pay off to have exposure to both U.S. and international stocks in your portfolio.
Source: Bloomberg
Data: US stock performance is from the MSCI USA Index and International stock performance is from the MSCI EAFE (Europe, Australasia, Far East) Index. Chart data shown for 1.29.1971 through 9.30.2022.
Methodology: Cycles of outperformance based on Foster Group calculations of turning points in regional leadership. Index returns are not the same as individual investor returns and do not reflect the impact of fees, transactions costs or taxes, all of which would reduce an investor’s return.