It pays to cover all the angles, whether you’re dealing with money or relationships.

In marriage, there are special occasions that should be acknowledged and celebrated. At the top of that list are my wife’s birthday and our anniversary. Over the years, my gifts to her have been hits and misses. Sometimes dinner is a winner; other times a simple card does the trick. Fortunately, I never miss big because I always hedge with some combination of cards, dinners, accessories, or acts of kindness, such as cleaning her car or resyncing her Apple Watch® and iPhone®.

Individually, there are always winners and losers. But taken together, my wife still receives the same satisfaction from my better ideas, while I’m protected from my misses.

Ultimately, I approach gift-giving the same way I approach global equity investing.

The ebb and flow of global equities

Global equity markets experience natural ups and downs. In turn, some regions, countries, and sectors will perform better than others do, but I stay balanced and committed to my long-term financial objectives. However, it’s not always easy—a prime example has been the period following the 2008 global financial crisis.

Since the market hit bottom in March 2009, U.S. equities have bested their international peers by 6.2%, on an annualized basis, and with considerably less volatility (13.6% versus 16.1%, respectively). If I had perfect foresight, I would’ve invested all my money in U.S. equities. But I’ve always kept in mind 2 important facts: I don’t have perfect foresight, so sometimes I’d win and sometimes I’d lose; and while recent performance differences are significant, they’re not abnormal.

Performance leadership between U.S. and international equities has been mixed

(U.S. equity vs. international equity rolling five-year returns: January 1970–December 2018)

Graph showing time periods when U.S. stocks outperformed international stocks, and vice versa.

Source: Morningstar Direct, Vanguard analysis.

Data as of 12/31/2018. International equity returns as measured by MSCI World ex US Index; U.S. equity returns as measured by MSCI USA Index.

Looking back to 1970, U.S. equity performance compared with international equity performance has been highly cyclical—with each performance cycle being different in terms of its reach and duration. Again, had I avoided U.S. equities in the years leading up to the financial crisis and then moved back into U.S. equities once the market had bottomed out, I would’ve reaped significant gains.

But no one can predict the future.

The power of global equity diversification

While returns are important, they paint only half the picture. As an investor, you want to capture these returns in the most efficient and consistent way possible. Globally diversifying your portfolio (i.e., holding both U.S. and non-U.S. equities) is a powerful approach that can help you meet that objective.

Generally, the average long-term returns of U.S. and international equities are similar, but their paths to those returns differ. Including both investments in a portfolio can help reduce volatility without sacrificing potential gains.

The charts below illustrate that a globally diversified equity portfolio (60% U.S., 40% international) would have consistently lowered volatility and produced a greater risk-adjusted return, or higher return per unit of risk, relative to a portfolio that held only U.S. or international equities.

Adding international equities to a U.S. equity portfolio would have persistently lowered volatility

(Rolling five-year standard deviations of monthly returns January 1970–December 2018)

Line chart showing time periods where global equity volatility was less than U.S. equity volatility.

Source: Morningstar Direct, Vanguard analysis.
Data as of 12/31/2018. International equity returns as measured by MSCI World ex US Index; U.S. equity returns as measured by MSCI USA Index

The globally diversified equity portfolio produced the highest risk-adjusted return over the full analysis period

(January 1970–December 2018)

Graph showing how a portfolio invested in global stocks helps reduce risk compared to investing only in U.S. or international stocks.

Source: Morningstar Direct, Vanguard analysis.
Data as of 12/31/2018. International equity returns as measured by MSCI World ex US Index; U.S. equity returns as measured by MSCI USA Index.

The case for global diversification is as strong now as it ever was

As recently discussed in Vanguard’s 2019 economic and market outlook, we expect global equity returns to be lower over the next 10 years. However, given the relative underperformance by international equities, they look more attractively valued compared to their U.S. counterparts. Based on that information, over the next 10 years we expect international equity returns to outpace U.S. market returns and to reduce overall volatility when added to a U.S. equity portfolio. That said, it’s important to approach market forecasts with a sense of humility since predicting returns and market conditions isn’t an exact science and anchoring to a single return estimate masks the full range of potential outcomes.

While I can’t say with certainty which region will perform best over the next decade, I’m confident that periods of outperformance and underperformance by U.S. and international equities will persist, and the benefits of diversifying your portfolio make a strong case for global equity investing.

In my personal life, I know some of my gifts will be hits and others misses.

But thanks to the lessons of global diversification, I’ve saved myself from a bumpier ride!


  • All investing is subject to risk, including the possible loss of the money you invest.
  • Diversification does not ensure a profit or protect against a loss.
  • Past performance is not a guarantee of future returns.
  • Apple Watch and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries.