Is international diversification worth it?

U.S. stocks have outperformed international markets, thanks to robust earnings, high valuations, and a strong dollar. But Qian Wang, chief economist for the Asia Pacific region and global head of the Vanguard Capital Markets Model®, suggests that this trend may not continue, and that international stocks could be poised for a comeback.

In this episode of Better Vantage, she cautions that focusing solely on U.S. investments can expose investors to unnecessary risk. Instead, a globally diversified portfolio can help investors navigate uncertainty and benefit from opportunities that arise beyond the U.S.

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Notes:

All investing is subject to risk.
Past performance is not a guarantee of future returns. The performance of an index is not an exact representation of any particular investment, as you cannot invest directly in an index.
IMPORTANT: The projections and other information generated by the Vanguard Capital Markets Model (VCMM) regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. Distribution of return outcomes from VCMM are derived from 10,000 simulations for each modeled asset class. Simulations as of June 30, 2025. VCMM results will vary with each use and over time.
The VCMM projections are based on a statistical analysis of historical data. Future returns may behave differently from the historical patterns captured in the VCMM. More importantly, the VCMM may be underestimating extreme negative scenarios unobserved in the historical period on which the model estimation is based.
The Vanguard Capital Markets Model® is a proprietary financial simulation tool developed and maintained by Vanguard s primary investment research and advice teams. The model forecasts distributions of future returns for a wide array of broad asset classes. Those asset classes include U.S. and international equity markets, several maturities of the U.S. Treasury and corporate fixed income markets, international fixed income markets, U.S. money markets, U.S. municipal bonds, commodities, and certain alternative investment strategies. The theoretical and empirical foundation for the Vanguard Capital Markets Model is that the returns of various asset classes reflect the compensation investors require for bearing different types of systematic risk (beta). At the core of the model are estimates of the dynamic statistical relationship between risk factors and asset returns, obtained from statistical analysis based on available monthly financial and economic data from as early as 1960. Using a system of estimated equations, the model then applies a Monte Carlo simulation method to project the estimated interrelationships among risk factors and asset classes as well as uncertainty and randomness over time. The model generates a large set of simulated outcomes for each asset class over time. Forecasts represent the distribution of geometric returns over different time horizons. Results produced by the tool will vary with each use and over time.
Video time stamp 1 min 33 sec source: MSCI USA Total Return Index from December 2014 to December 2024. Video time stamp 5 min 40 sec source: TOPIX from December 31, 2012, to December 31, 2024.
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