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The Benefits of International Diversification

The Benefits of International Diversification

| September 01, 2022

Many U.S.-based investors hold common misconceptions about international stocks. They are too risky...they underperform the U.S...multinationals already give me exposure to international...the currency impact is too complicated...the list goes on.

Unfortunately for many investors, these myths and misconceptions often keep them from investing in some of the fastest growing regions of the world, and cause them to miss out on some of the valuable diversification benefits that come from dedicated long term exposures to international investments.

In fact, from 1950-2019, a portfolio consisting of 70% S&P 500 and 30% MSCI ACWI ex-USA had the same return as the S&P 500 over that period, but with meaningfully less risk and a higher Sharpe ratio (a measure of risk-adjusted returns):

History shows that U.S. stocks and International stocks tend to alternate performance leadership over long periods of time. The long bull market we've seen in U.S. stocks may have left more at risk to overexposure in U.S.-based assets, and we believe that now may be a great time to revisit your strategy for international equities.