International stocks: why diversify globally?

A recurring debate: should you hold international stocks, or just own the US market? US stocks have crushed international for most of the last 15 years, and many investors have concluded they can safely skip international altogether. The math and history disagree.

The case against skipping international

• The US is about 25% of global GDP and historically 60% of global market cap. Owning only US means ignoring half the world's investable companies.
• Recent decades of US outperformance are an outlier, not a rule. From 2000 to 2010, international beat the US. From 1970 to 1990, international beat the US. The leadership rotates.
• Home country bias is a documented behavioral error. Japanese investors in the 1990s thought the same way about Japan, right before a 20-year bear market.
• Valuations matter long-term. US stocks have been expensive for years; international has been cheap. Long-term returns usually reflect starting valuations.

The case for holding less international

• Many US companies already have significant international revenue (Apple, Microsoft, Coca-Cola). Some say you're already globally diversified by owning them.
• Currency risk: international returns in USD include exchange rate movements, which add volatility.
• US markets are more liquid, more transparent, and more shareholder-friendly than many foreign markets.