From 2014 to 2023, the MSCI EAFE index (developed markets outside the U.S. and Canada) returned about 5.5% annualized, turning $1,000 into $1,710. The MSCI Emerging Markets index returned about 4.8% annualized, turning $1,000 into $1,600. Meanwhile, the S&P 500 returned 12.5% annualized — $3,240. The gap is enormous, and it has led many investors to abandon international stocks entirely.
That's recency bias talking. In the 2000s, the exact opposite happened: the U.S. market went nowhere (the 'lost decade'), while international and emerging markets soared. Over the very long term, U.S. and international returns have been roughly equal, taking turns leading. The current U.S. dominance has been driven by tech mega‑caps, and history suggests that leadership rotates.
Diversification is an insurance policy. It's not about maximizing return every single year; it's about avoiding catastrophic losses when the dominant market eventually falters. A portfolio with 20–30% international exposure may have underperformed recently, but it is poised to protect you when the cycle shifts — and it always does, eventually.