Why It Still Makes Sense to Diversify Beyond U.S. Markets

It’s understandable for many investors to ask: “If U.S. stocks have outperformed for years, why bother with international equities?” This is a valid question—but focusing only on past returns misses the larger picture of risk, valuation, and resilience. As a fiduciary, we must evaluate not just what has done the best recently, but what portfolio structure offers the most sustainable long-term return per unit of risk.

In what follows, we lay out the case for global diversification: how it helps reduce portfolio volatility, why today many international stocks are relatively “cheaper” than large-cap U.S. growth, and how diversification helps preserve capital during market downturns.

Concentration risk in U.S.-only portfolios

A U.S.-only portfolio is tied tightly to the performance of U.S. policy, interest rates, regulation, consumer behavior, and the performance of large company stocks. Over the past decade, U.S. equity indices (like the S&P 500) have become more dominated by a handful of mega-cap tech names—so even a 'broad' U.S. fund may carry substantial single-stock risk.

If the U.S. economy or markets stumble, there is no geographic cushion. Diversification across geographies means that when one region suffers, others may hold up—or decline less sharply—helping to stabilize the overall portfolio.

Risk reduction via diversification (standard deviation explained simply)

A core principle of portfolio theory is that combining assets with less-than-perfect correlation helps smooth the ride.
Standard deviation is a statistical measure of how much returns deviate from their average. Think of it as 'how wild the swings tend to be.' When you combine two assets that don’t move perfectly in sync, the combined volatility can be lower than you might expect just by averaging their individual risks.

Real-Life Example: Combining Low-Correlation Assets

Consider U.S. equities (S&P 500) and international equities (MSCI ACWI ex US). While both are stocks, they do not move perfectly in sync. Adding international exposure to a U.S.-only portfolio has historically reduced overall portfolio volatility while maintaining nearly the same return. This is the essence of diversification: reducing risk without necessarily sacrificing returns.

This shows that diversification can provide nearly the same return as a U.S.-only equity allocation, but with lower volatility.
 

Sources:
•    Fidelity Investments (2024). Disciplined Investor International Equity Case. https://www.fidelity.com/bin-public/060_www_fidelity_com/documents/disciplined_investor_intl_hardcard.pdf
•    Vanguard (2024). Making the Case for International Equity Allocations. https://corporate.vanguard.com/content/corporatesite/us/en/corp/articles/making-case-international-equity-allocations.html
•    Morningstar (2023). Does the Case for Investing Internationally Add Up? https://www.morningstar.com/portfolios/does-case-investing-internationally-add-up
•    Oppenheimer (2024). International Diversification: Evolving Perspectives and Implications. https://www.oppenheimer.com/getContentAsset/fff7bbdf-52e4-4077-a2d8-43525f06108f/c7457923-fb44-4ba3-82e6-d567e6afe238/2024-Summa-Group-Whitepaper_International-Diversification-FINAL.pdf

Valuation: the 'cheaper today' argument for international equities

Valuation is a way to assess how expensive a stock (or basket of stocks) is relative to its earnings, growth, or fundamentals. Common metrics include price-to-earnings (P/E), forward P/E, and price-to-book ratios.
As of late 2024, international equities were trading at a near historic discount of about 13.4x forward earnings (MSCI ACWI ex-USA), compared to 20.9x for the S&P 500. Research shows that lower starting valuations are often associated with higher subsequent long-term returns, which is an intuitive conclusion. International equities therefore not only diversify portfolios, but also offer stronger return potential relative to their risk given current valuations.

Downturns and the survival premium: protecting capital matters

Diversification’s real payoff often shows up in highly negative periods. If U.S. equities retreat, a concentrated U.S. portfolio bears the full brunt. International equities with better (cheaper) valuations may not fall as sharply, or may recover sooner. That means your overall portfolio drawdown is more shallow, and recovery starts from a higher base. Over multiple cycles, repeatedly avoiding the worst of the moves helps preserve capital—and that preservation can compound meaningfully over time.
Integrating valuation, risk, and diversification: the holistic case

•    Diversification smooths returns and reduces volatility (lower standard deviation).
•    Better valuations internationally today provide room for re-rating or protection if U.S. multiples contract.
•    Capital preservation in drawdowns helps compound wealth more reliably.
As fiduciaries, we cannot ignore either side—return or risk—we must seek trade-offs that maximize long-term growth while avoiding large losses.

Addressing the objection: 'International stocks have underperformed historically—why bother?'

Yes, U.S. markets have delivered strong performance, especially driven by tech leadership, but leadership rotates. Part of U.S. outperformance recently is explained by multiple expansion (paying higher prices for growth). If multiples contract, the advantage can reverse.
The benefit of international exposure is not only capturing upside but mitigating downside, which is harder to see in simple return comparisons.

Practical guidelines for investors

• Maintain a meaningful allocation to international equities (developed + emerging).
• Focus on quality, fundamentals, and valuation in selecting international exposures.
• Rebalance periodically to capture valuation shifts.
• Use a mix of core stable holdings and selective opportunities in undervalued markets or sectors.

Conclusion

While U.S. equities have had a strong run, portfolios built purely around recent winners risk concentration, valuation reversals, and loss of defensive resilience. By combining global diversification, valuation discipline, and a mindset that values downside protection as much as upside potential, investors build more robust portfolios.
As fiduciaries, we are committed to managing both sides of the equation: risk and reward.

Sources:
•    Dodge & Cox, 'The Case for International Equities,' 2024.
•    Verdad Capital, 'Explaining International Valuations,' 2024.
•    Morningstar, 'Are International Stocks Worth the Bother?,' 2024. 
•    Brandes Investment Partners, 'Chart of the Week: U.S. vs International Valuations,' 2023.
•    TopdownCharts, Global Equity Valuations (image reference).
•    Vanguard, 'Making the Case for International Equity Allocations,' 2024.
•    Oppenheimer, 'International Diversification Whitepaper,' 2024.

Disclosures
S&P 500 Index: The S&P 500® Index is a market capitalization–weighted index of 500 of the largest publicly traded companies in the United States. It is widely regarded as the best single gauge of large-cap U.S. equities. Index performance is unmanaged and does not reflect the deduction of fees or expenses. Investors cannot directly invest in an index.
MSCI ACWI ex USA Index: The MSCI ACWI ex USA Index captures large- and mid-cap representation across 22 of 23 developed markets (excluding the United States) and 24 emerging market countries. With more than 2,000 constituents, the index covers approximately 85% of the global equity opportunity set outside the U.S. Index performance is unmanaged and does not reflect the deduction of fees or expenses. Investors cannot directly invest in an index.
Courier Capital, LLC (“Courier Capital”) is an SEC registered investment adviser located in Buffalo, NY, Rochester, NY, Jamestown, NY, Pittsburgh PA and Sarasota FL.  For information pertaining to the registration status of Courier Capital, as well as its fees and services, please refer to our disclosure statement as set forth on Form ADV, available upon request or via the  Investment Advisor Public Disclosure Website(www.adviserinfo.sec.gov).  The information contained herein should not be construed as personalized investment advice or a solicitation to buy or sell any security.  Investing in the stock market involves risk of loss, including loss of principal invested, and may not be suitable for all investors.  Past performance is no guarantee of future results.  This material contains certain forward-looking statements which indicate future possibilities.  Actual results may vary.  Additionally, this material contains information derived from third party sources.  Although we believe these sources to be reliable, we make no representation as to the accuracy of any information prepared by an unaffiliated third party incorporated herein, and take no responsibility therefore.  All expressions of opinion reflect the judgement of the authors as the date of publication and are subject to change without prior notice.  Investment products and services are not FDIC Insured, are not a deposit or bank guaranteed, are not insured by any Federal governmental agency, and are subject to investment risks, including possible loss of the principal invested.