In a surprising turn of events, global equities outpaced U.S. stocks by approximately 10% in the first half of 2025, challenging years of American stock market leadership and marking one of the broadest gaps seen in decades. Even though the S&P 500 remains as the international benchmark for equities, this shift re-emphasizes that market leadership fluctuates and investing solely in domestic stocks can lead to a treacherous concentration for American investors.
A wide-ranging portfolio should include investments across various industry sectors, asset classes, along with multiple geographies. However, the U.S. stock market has recently trailed its global counterparts. Factors such as President Donald Trump's tariffs and decelerating corporate earnings have dented the momentum of the S&P 500.
Numerous non-U.S. stocks have sped past their U.S. counterparts by a double-digit margin in the first half of 2025, creating one of history’s largest gaps. This new market order is further cemented by sentiment as revealed by Bank of America’s June Global Fund Manager Survey – 54% of professionals now anticipate international equities to deliver superior performance over the next five years, compared to a mere 23% picking U.S. stocks.
Nevertheless, investors often display a strong inclination towards local stocks – a phenomenon behavioural economists call “home bias”. A recent review by the Plan Sponsor Council of America revealed that the average investor allocates 82% of their equity investment towards U.S. stocks. Additionally, 17% had no investment in foreign stocks.
However, over-concentration can be detrimental to performance. U.S tech giants which dominate broad indexes like the S&P 500, are susceptible to tariff and antitrust shocks and carry richer valuations compared European or Asian counterparts. In contrast, global markets often have lower price-to-earnings ratios, and different currency, population, and commodity cycles can be beneficial.
Diversification across regions can offer protection against a single market’s tumble. Thus, experts highly advocate allocating at least 20% to foreign stocks and bonds as a complete diversification strategy. This investment approach ensures gains from global markets and avoids the risk associated with a single economy or political regime.
One doesn't require opening foreign brokerage accounts or choosing individual international firms for investments. Basic broad funds usually do the trick: Global diversification is less about speculation and more about risk mitigation.
While international stocks have taken the lead in 2025, the chance of their sustained dominance is quite high according to professional money managers. On the other hand, everyday savers seem to be under-invested abroad. Therefore, shifting up to 20% of your stock investments to low-cost international funds can align your portfolio better with the world economy, bring forth new sources of return and decrease the probability of any single country, including the U.S., disrupting your long-term plans.