We all know that US stocks have significantly outperformed international stocks in recent years. Because of this and the fact that many US based multinationals are major players in the world economy, many clients have asked whether international diversification is unnecessary. Not at all.
A few reasons to continue investing internationally:
- International stocks represent about 45% of the global market– this is a huge opportunity set that you do not want to ignore
- It wasn’t long ago that international stocks outperformed domestic stocks. Global diversification gives you a chance to participate in whatever region is outperforming at a given time.
- Positive international outlook: the expected return outlook for non-US stock markets over the next 10 years is 8.4% whereas the outlook for US stocks is 5.1%
- Risk reduction: historically, a mix of US and International stocks has tamped down the volatility in portfolios, leading to reduction in portfolio risk
Source: Vanguard, FactSet, Morningstar, Thomson Reuters Datastream. The projections and other information regarding the likelihood of various investment outcomes are hypothetical in nature and do not reflect actual investment results.