Most investors assume the US is the place to be — and lately, that's been true. But the picture is more complicated than recent headlines suggest.
The US now makes up 62% of global stock market capitalization, as measured by total stock market valuation. This figure is up from a 50% average over the past 35 years, suggesting that US equities are more expensive in relation to their foreign counterparts. Yet it hasn’t always been that way: foreign markets have outperformed the US for extended stretches before — in the mid-1980s, the early 1990s, throughout the early 2000s, and again in 2025.
Moreover, at the individual country level, the US is rarely the top performer. Last year, for example, it posted a solid 17% return. But among the 22 developed market countries we track, it ranked near the bottom. Spain, Austria, and Ireland, for instance, returned 82%, 77%, and 57%, respectively. Investing internationally allows us to participate in the results of other economies.
There are also more fundamental reasons to invest overseas. When you buy a stock, you're paying for a share of that company's future earnings — and right now, US stocks cost more per dollar of earnings than their foreign counterparts do. Investors call this the P/E ratio, and a higher P/E generally means a stock is more expensive relative to its earnings. Expensive markets tend to have less room to grow, while cheaper ones have more room for prices to catch up.
Valuation isn't the only reason to look abroad. International stocks also diversify your risk. They reduce the amount of your portfolio tied up in a handful of expensive US tech companies, which is largely responsible for rising US stock prices. Further, since foreign stocks are priced in other currencies, holding them also reduces the risk that the dollar might weaken.
Finally, it provides access to different and sometimes faster-growing economies than our own. And simply put, they give you exposure to many more companies than the US alone can offer.
How we put this into practice.
For most clients, we allocate roughly a third of our stock holdings to international markets, including a mix of developed and emerging countries that meet certain criteria. Within that, we lean toward smaller, value-oriented companies that tend to provide improved diversification away from megacap names already well-represented in US portfolios.
The bottom line: the US has earned its reputation as a strong market, but no single country stays on top forever. Spreading your investments globally isn't about betting against the US — it's about making sure you're not betting on just one outcome.
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Data source: Dimensional Fund Advisors. Past performance is not a guarantee of future results. All data is based on indexes, which are not available for direct investment.