The Enduring Case for Global Diversification
“The four most dangerous words in investing are: ‘This time it’s different.'”
– Sir John Templeton
For over a decade, U.S. stocks dominated global markets with the S&P 500 delivering 14%+ annualized returns through 2024. Many investors abandoned international diversification entirely. Then 2025 arrived.
International stocks returned 19% in the first half alone, with the MSCI All-Country World Index (ex-U.S.) posting around 30% for the year – nearly double the S&P 500’s performance. It paid to be a globally diversified investor.
The Pendulum Swings
This reversal shouldn’t surprise evidence-based investors. According to Dimensional Fund Advisors, country returns can swing dramatically – the spread between best and worst country performers averaged 43 percentage points annually over the past decade! Canada declined 24% in 2015, then surged 24% in 2016…and in 2025, Spain gained 43% early in the year, while Denmark fell 5.5%.
Since 1970, U.S. and international markets have repeatedly traded leadership positions in performance. No cycle lasts forever. As legendary investor Benjamin Graham taught us, in the short run the market is a voting machine, but in the long run it’s a weighing machine. We are invested to maximize the weight of your financial assets over time and market cycles in order to allow you to accomplish all that is most important to you.
“Don’t Put All Your Eggs in One Basket”
We have all heard (likely ad nauseum) about the “Magnificent 7” stocks and the concentration they represent in global markets, but it bears repeating here as it is indeed quite significant. By mid-2025, five U.S. tech companies (five of the seven ‘magnificent’) – Apple, Microsoft, NVIDIA, Amazon, and Alphabet – comprised over 25% of the S&P 500. Their combined value exceeded any economy outside America. In contrast, international markets’ top five holdings represented just 7% of the MSCI World ex-U.S. Index.
Academic research by Professors Dimson, Marsh and Staunton out of Cambridge and London Business School found that “while globalization has increased the extent to which markets move together, the potential risk reduction benefits from international diversification remain large,” (Global Investment Returns Yearbook). Dimensional Fund Advisors emphasizes that investors maintaining globally diversified portfolios benefit from international exposure without trying to time which countries will outperform over long periods of time. Even though one cannot predict which country will outperform another, one of the benefits of global diversification is that it can blunt the impact of any single country’s underperformance.
A Reminder of The Cost of Timing
Peter Lynch once observed, “Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves.” Data shows us that the endeavor of timing markets doesn’t reliably add to investor returns (see chart below). To try and predict which area of the market will outperform another is ultimately not profitable.
The year 2025 reminded us why discipline matters. International diversification isn’t about perfect results every period – it’s about better risk-adjusted outcomes over the long term. One step at a time. For long-term investors, that step is committing to global diversification and maintaining it through all market seasons.
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