Many affluent investors rely on the S&P 500 as the cornerstone of their equity portfolios. With its history of strong returns, low-cost index access, and household-name companies, it feels like a smart choice. But there’s one problem; it isn’t enough.
For Gen X investors in their prime wealth-building years, a globally diversified portfolio remains essential. While the S&P 500 offers broad U.S. market exposure, it falls short in geographic, sector, and currency diversification. And over time, those gaps can lead to missed opportunities and elevated risks.
This article explores why international investing remains relevant, when it outperforms, and how to build a global strategy that supports your life and legacy goals.
1. The S&P 500 Is Not Globally Diversified
Despite its name recognition, the S&P 500 is not a global index. It includes only U.S.-based companies. Even though many of these firms earn revenues abroad, their stock prices are still tied to U.S. economic conditions, regulations, and the dollar.
Moreover, the index has become increasingly concentrated. As of 2024, the top 10 holdings—primarily mega-cap tech companies—make up over 35% of the entire index¹. The technology sector alone accounts for over 28%². That’s not true diversification; it’s concentrated exposure disguised as breadth.
Concentration risk increases the volatility of a portfolio, especially during periods when a handful of sectors underperform. For investors nearing retirement or looking to preserve capital, this can create unintended risks.
2. International Stocks Have Outperformed in Key Decades
While the U.S. has led global markets over the last 10–15 years, this wasn’t always the case, and won’t be forever. For example, during the “Lost Decade” from 2000 to 2009, the S&P 500 delivered a negative-0.95 % annualized return, while international developed markets (MSCI EAFE) gained +1.17%, and emerging markets returned +9.78%³.
Long-term studies show that from 1970 to 2023, international equities outperformed U.S. equities in 45% of rolling 10-year periods⁴. Diversifying globally isn’t about timing markets—it’s about reducing the risk of betting everything on one region’s continued dominance.
Global investing captures different economic cycles, innovations, and regional trends that may not be reflected in U.S. stocks. For example, Europe and Asia are home to leading firms in energy, industrials, and manufacturing sectors that are often underrepresented in the S&P 500.
3. Global Diversification Lowers Portfolio Risk
Adding international stocks to your portfolio can improve risk-adjusted returns and reduce volatility. One major study found that global diversification can reduce overall portfolio volatility by up to 15%, even in periods when U.S. markets outperform⁵.
This is because international assets often move differently from U.S. markets. By including a mix of developed and emerging markets, investors buffer against localized economic shocks, political risk, and currency fluctuations. Currency diversification alone can act as a hedge when the U.S. dollar weakens.
For high-net-worth households with substantial assets and multigenerational goals, smoothing returns through global diversification helps maintain lifestyle consistency, funding for retirement goals, and legacy planning during down markets.
4. International Investing Fights Home Bias
Behavioral finance shows that most investors overallocate to their home country—a phenomenon called home bias. Even among investors with access to global opportunities, many overweight U.S. stocks due to familiarity and recent performance.
This overconfidence often leads to regret when markets rotate. While the U.S. has led since 2009, leadership often shifts. If investors chase performance or delay diversifying until after U.S. markets lag, they often miss the upswing abroad.
Setting a disciplined allocation to global markets and sticking to it through rebalancing removes emotion from the equation. At Concurrent Wealth, we help clients identify their ideal geographic mix based on goals, time horizon, and tolerance for risk, and execute a rebalancing strategy to maintain it over time.
5. How to Build a Globally Diversified Portfolio
International investing doesn’t mean abandoning the U.S. It means complementing U.S. exposure with the right mix of developed and emerging markets.
Here’s a starting point:
- 30–40% of your equities in non-U.S. holdings
- 20–30% in developed markets (Europe, Japan, Canada, Australia)
- 5–10% in emerging markets (India, Brazil, Southeast Asia)
- 20–30% in developed markets (Europe, Japan, Canada, Australia)
- Use broad, low-cost ETFs such as:
- Rebalance annually to control for performance drift.
- Consider tax-efficient investing to offset international fund capital gains, particularly in taxable accounts.
Key Takeaways
- The S&P 500 is not globally diversified. It overexposes you to U.S.-centric risks and sector concentration, particularly in technology and consumer giants.
- International markets have historically outperformed the U.S. in many periods. Including them reduces the chance of missing entire market cycles.
- Global diversification smooths volatility, protects against home bias, and aligns portfolios with global economic growth.
Let’s Talk About Your Portfolio
Is your portfolio as globally diversified as you think? If you’re unsure, let’s review your allocation together. At Concurrent Wealth, we design globally balanced, tax-aware portfolios tailored to your values and long-term lifestyle goals.
Schedule your complimentary, good-fit meeting to discover how we can help you build a smarter, more resilient portfolio for what matters most.
References
- Sensible Money. (2024). The Myth of S&P 500 Diversification. Retrieved from https://sensiblemoney.com
- Morningstar. (2024). Sector Weightings of the S&P 500. Retrieved from https://www.morningstar.com
- Hartford Funds. (2024). The Case for Global Investing. Retrieved from https://www.hartfordfunds.com/dam/en/docs/pub/whitepapers/CCWP014.pdf
- Russell Investments. (2024). Beyond Borders: Why Global Diversification Still Matters – Part 2. Retrieved from https://russellinvestments.com/us/blog/beyond-borders-why-global-diversification-still-matters-part-2
- NerdWallet. (2024). How to Invest in International Stocks. Retrieved from https://www.nerdwallet.com/article/investing/how-to-invest-foreign-international-stocks
- Fidelity. (2024). Currency Risk in Portfolios. Retrieved from https://www.fidelity.com/viewpoints/market-and-economic-insights/currency-risk-in-portfolios
- Morningstar. (2024). Home Bias Is Real. Retrieved from https://www.morningstar.com/articles/1296725/home-bias-is-real
- Fidelity. (2024). Why Rebalancing Matters. Retrieved from https://www.fidelity.com/viewpoints/investing-ideas/why-rebalance
