The Importance of Global Diversification in Your Investment Portfolio

Key Takeaways

• No matter how many stocks, bonds, and funds you own, if they’re all U.S.-based, you’re not sufficiently diversified.

• Don’t try to pick global stocks, sectors, and countries on your own. It’s highly unreliable, and leaders rarely repeat two years in a row. Leave it to the pros.

• You might be surprised to learn what our typical client’s global allocation is. Find out why. Read on.

  
  

You might think your portfolio is well diversified if you hold a mix of U.S. stocks across sectors—technology, healthcare, energy, consumer goods, and more. However, if those holdings are all from American companies, your diversification is still incomplete.

To Build A Truly Diversified Portfolio, You Need To Invest Globally

Economic growth, market performance, and political environments vary widely across countries. Just as you can’t predict which U.S. sector or which country’s stock market will outperform the others from year to year, investing internationally allows you to spread your risk across different economies. This strategy provides exposure to return streams that move independently from the U.S. market. In finance, we say those investments are “un-correlated.” Lack of correlation is beneficial for long-term investing.

Different Countries Have Different Economic Cycles

Global diversification matters most when markets hit turbulence. When the U.S. faces systemic headwinds—such as high interest rates, inflation, or political uncertainty—your portfolio may suffer if it’s heavily concentrated in U.S. stocks alone. Other countries, however, may be experiencing entirely different conditions and market outcomes. They may be holding steady or even thriving when U.S. stocks are struggling—and vice versa.

That’s why our clients’ portfolios are typically allocated 60% to U.S. stocks and 40% to international stocks. This blend reduces the portfolio’s dependence on any one country’s fate and helps clients avoid the emotional rollercoaster of every news cycle.

Take the so-called “lost decade” from 2000 to 2010. U.S. stocks (as measured by the S&P 500) delivered a negative annual return of -0.95%. Yet, a globally diversified portfolio—60% global equities and 40% bonds—returned nearly 7% per year over that same period. Global diversification isn’t just theory—it works in practice.

Currency Diversification

Some investors are concerned about the impact of foreign currency fluctuations on international returns. It’s true that when the U.S. dollar strengthens, international holdings may look less favorable in dollar terms. However, when the U.S. dollar weakens, the same investments often deliver a boost.

These ups and downs in currency markets are not tightly correlated with equity markets. This means currency markets can provide additional diversification benefits. It’s important to remember that while currency moves can affect short-term performance, their long-term impact tends to even out, especially when incorporated into a diversified global portfolio.

Why Not Go It Alone

When it comes to global diversification, it might be tempting to pick individual stocks or target specific foreign markets. However, global investing is complicated. Emerging markets, for example, carry risks related to political instability, legal structures, and corporate transparency. Even in developed nations, regulations, tax policies, and labor laws vary widely and can impact profitability in unpredictable ways.

There are more than 10,000 public companies outside the United States. Conducting proper due diligence on all of them is a full-time job—one best left to professionals. That’s why we use broad-based international mutual funds and ETFs, which offer built-in research, diversification, and efficiency.

These funds provide exposure to hundreds (if not thousands) of companies across continents, helping investors avoid country-specific risk and benefit from global economies that are currently outperforming.

Weathering What’s Ahead

If you’re uneasy about the U.S. economy, trade policy, or the growing unpredictability of global events, it’s time to reassess your portfolio’s structure. Volatility isn’t going away anytime soon—but it can be managed with the right strategy.

Global diversification is not about chasing returns in faraway markets. It’s about positioning yourself to succeed no matter which region is leading—or which one is lagging. Over time, this approach reduces volatility, improves consistency, and helps keep your financial plan on track.

Conclusion

If you or someone close to you has concerns about your asset allocation or retirement readiness, contact us anytime to discuss. We’re happy to help.

ROBERT B. DUNN, CFP® is the President and Managing Partner of Novi Wealth