Global Markets: Is International Investing Worth the Risk?

In an era of unprecedented global connectivity, investors everywhere face a pressing question: should we continue to concentrate our portfolios at home, or embrace opportunities abroad? Recent shifts in market leadership have stirred deep reflection among both individual savers and institutional managers.

While the U.S. market has long been the beacon of innovation and growth, 2025’s early data suggest that international equities may be poised for a resurgence. Navigating this complex terrain demands both emotional conviction and rigorous analysis.

Historical Performance: A Tale of Two Worlds

Time-tested performance metrics reveal the enduring strength of U.S. stocks, but also hint at the latent potential of global diversification. Over nearly a century, U.S. equities achieved a 10.3% average annualized return, compared to 7.8% for international stocks. Yet the past decade tells a more extreme story.

Between 2014 and 2024, U.S. stocks delivered a stellar 12.5% annualized return and an astounding 224.8% total gain, while international stocks returned 5.1% annually for a 64.4% cumulative rise. However, early 2025 data show a reversal: U.S. (VTI) at –5.5% versus international (VXUS) at +8.7%, with Europe (VGK) up 15.3%.

Short-Term Surges and Mean Reversion

The dramatic flip in performance raises a pivotal question: is this mean reversion or one-off anomaly? Historical cycles suggest that long-term leadership often oscillates, yet U.S. dominance has proved remarkably resilient.

In the face of stretched valuations and sector concentration at home, international markets may simply be capturing a momentary advantage. Alternatively, they could signal a deeper paradigm shift in market leadership as central banks diverge in policy, currencies fluctuate, and growth pockets shift.

Valuations, Concentration, and Dispersion

One of the most compelling drivers for reallocating abroad is the valuation gap. Large U.S. tech names now trade at record multiples, heightening risk for home-biased portfolios. By contrast, European, Japanese, and emerging market equities often appear attractively priced.

Increasing “dispersion” between sectors and regions suggests that idiosyncratic winners and losers will emerge. Investors who pursue an active management approach—selecting underappreciated names across geographies—may reap outsized rewards compared to broad market bets.

Global Economic and Policy Outlook

The broad economic backdrop supports a cautious tilt toward international exposure. Global GDP growth for 2025 is projected around 3%, with Europe, Canada, Japan, and the U.K. expected to expand. Notably, no major economy is forecast to enter recession next year.

U.S. growth is estimated at 2.0%, leaving room for more aggressive stimulus and further Federal Reserve restraint. Meanwhile, easing policies abroad—potential rate cuts by the European Central Bank and Bank of Japan—could fuel a rally in developed non-U.S. markets.

The True Risk of Emerging Markets

Emerging markets often carry a reputation for volatility and credit risk. Yet private sector default rates in many emerging economies average 3.6%, similar to global B-rated corporates, even during tumultuous periods.

Correlations between emerging market stress events and global crises remain modest, highlighting the material diversification benefits across global assets when added to a traditional 60/40 U.S. portfolio.

Strategic Takeaways for Investors

• Re-examine your home bias: historical patterns may not dictate future returns.
• Consider valuation gaps: cheaper markets can offer a margin of safety.
• Embrace active and thematic strategies: sectors like healthcare and industrials in Europe and Asia may lead the next growth phase.
• Stay vigilant on policy risks: trade tensions, elections, and currency swings require agility.

Above all, crafting a globally diversified portfolio is not just about chasing short-term gains—it’s about building resilience, capturing opportunities wherever they arise, and remaining steadfast when markets turn.

As you contemplate the evolving financial horizon, remember that true confidence springs from knowledge and conviction. International investing may seem daunting, but armed with data and a clear strategy, it can transform uncertainty into possibility.

The world’s markets are more interconnected than ever before. By looking beyond domestic borders, you open the door to new growth, innovation, and the timeless reward of expanding your investment horizons with courage.