We’ve been hearing a lot of buzz lately about international equities and whether they’re poised for a significant run. Many of you have asked if now is the time to shift focus and invest more heavily outside of the U.S.
It’s a great question, and it highlights the importance of a fundamental investment principle: diversification.
Our investment approach to international investing centers on capturing the returns from the entire global market– owning stocks from around the world, not just the U.S. This helps to maximize diversification and reduce the risks associated with concentrating in one market. Currently, this means about two-thirds of our equity allocation in U.S. stocks and one-third in international stocks, reflecting the current global market composition.
It’s true that over the past few years, U.S. equities have generally outperformed international markets. Several factors contributed to this, including:
- A strong U.S. dollar (USD): A strong dollar makes international investments less valuable when converted back to USD.
- The dominance of U.S.-based tech giants: Many leading global technology companies are registered in the U.S. (e.g., Apple, Meta, Nvidia), driving significant growth in the U.S. market.
However, the landscape of international investing is evolving. So far this year, international markets have actually outperformed U.S. equities thanks to changing geopolitical environment, comparative global interest rates and international stocks at lower valuations than their U.S. counterparts.
Diversification Over Market Timing
We believe a consistently diversified portfolio is smarter than trying to time the market. History has shown that accurately predicting market movements is incredibly difficult, even for seasoned professionals. Market timing often leads to missing out on significant gains or incurring substantial losses.
Diversification provides a more reliable path to long-term growth. By owning a range of assets, you’re more likely to participate in what’s going up while reducing the impact of what’s going down. Individual stocks may fluctuate, but the overall market has historically trended upward over time.
While it’s tempting to chase short-term trends, our focus remains on long-term, diversified growth. Maintaining a globally diversified portfolio, with appropriate international exposure, ensures we capture potential from all markets while managing concentration risks.
Take Action Now!
- Focus on your goals and having an appropriate asset allocation. Avoid making investment decisions based on short-term trends.
- Review your investment portfolio and assess if you own a range of asset classes, market capitalization, and geographies. Proper diversification can be most efficiently obtained by investing in mutual funds and ETFs.
- Block out the noise and don’t check your accounts daily, which can provoke anxiety. Instead, review on a monthly/quarterly basis.
- Make sure to review your portfolio at least once a year. Due to market ups and downs, you can become overweight or underweight in various asset classes and may need to rebalance.