For decades, U.S. equities have been the backbone of many investors’ portfolios. The S&P 500, with its concentration of innovative companies and deep liquidity, has often outperformed international peers. But in 2025, the narrative has begun to shift. With the U.S. dollar declining in value this year and foreign stock markets outperforming on a dollar-adjusted basis, investors are increasingly asking whether it’s time to look outward. This post explores why diversifying away from U.S. equities may be prudent, the role of global investment strategies, and how to position your portfolio to take advantage of opportunities beyond the US.
Why Investors Rely on U.S. Equities
The dominance of U.S. equities in global portfolios is no accident. The United States accounts for roughly 60% of global stock market capitalization. Home to giants like Apple, Microsoft, Amazon, and NVIDIA, U.S. markets have historically offered:
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Liquidity and stability – U.S. exchanges remain the deepest and most transparent globally.
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Growth and innovation – Technology, healthcare, and consumer discretionary sectors have led global innovation.
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The dollar’s role as reserve currency – A strong U.S. dollar has typically supported American assets.
However, markets are not static. Just as the U.S. rose to dominance, new opportunities have emerged abroad, and 2025 is showing signs that international diversification may no longer be optional, but necessary.
The U.S. Dollar’s Decline in 2025
Currency trends are critical in shaping global portfolio returns. In 2025, the U.S. dollar has declined meaningfully against a basket of global currencies. This shift is due to:
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Monetary policy divergence – The Federal Reserve has paused rate hikes, while other central banks have tightened policy to combat inflation.
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Fiscal pressures – Rising U.S. deficits, growing default concerns, and political gridlock have eroded investor confidence.
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Geopolitical shifts – Global trade alliances are becoming less dollar-centric, with some nations settling transactions in alternative currencies.
For investors, this means that returns from foreign equities are magnified when translated back into weaker U.S. dollars. A portfolio that includes European, Asian, or emerging market stocks in 2025 has likely enjoyed outsized returns simply from currency appreciation.
Global Stock Market Performance in 2025
While the S&P 500 has had a mixed year, international equities have surged on a U.S. dollar basis. Consider a few highlights:
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European equities have benefited from a strengthening euro, falling energy prices, and a revival in manufacturing.
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Japanese equities have rallied as corporate reforms and shareholder-friendly policies continue to attract global capital.
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Emerging markets such as India and Brazil are enjoying strong GDP growth, young demographics, and capital inflows.
When U.S. investors convert these gains back into dollars, the results are even more impressive. The combination of local market growth plus currency strength underscores the importance of global investment strategies.
The Case for Global Investment Strategies
So why should investors consider moving beyond U.S. borders? Several compelling reasons stand out:
1. Currency Exposure
As 2025 has demonstrated, a declining dollar can make international investments more attractive. Global diversification introduces exposure to foreign currencies, which can serve as a hedge against dollar weakness.
2. Broader Opportunity Set
By sticking solely to U.S. equities, investors miss out on:
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High-growth emerging markets
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Commodity-rich nations that benefit from resource demand
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Developed markets with strong dividend cultures, such as Europe and Japan
3. Valuation Differences
U.S. equities often trade at a premium relative to global peers. Allocating to international markets can help capture cheaper valuations and better risk-adjusted returns.
4. Risk Management
Diversification reduces reliance on any single country’s economic cycle, political climate, or monetary policy. Global investment strategies spread risk more effectively.
Key Elements for Global Investment Strategies
If you’re considering diversifying away from U.S. equities, it’s important to think systematically. Here are several components of a successful global investment strategy:
1. Regional Diversification
Don’t simply buy one international fund and call it a day. Consider splitting allocations across:
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Developed markets – Europe, Japan, Australia
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Emerging markets – India, Brazil, Southeast Asia
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Frontier markets – Smaller economies with higher growth potential
2. Currency Considerations
Currency movements can boost or reduce returns. Investors can choose between:
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Hedged international funds – Eliminate currency volatility, but miss out on dollar-weakness benefits.
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Unhedged international funds – Provide exposure to currency movements, which in 2025 has been favorable.
3. Sector Diversification
Global markets provide access to sectors underrepresented in the U.S. For example:
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Luxury goods in Europe
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Industrial conglomerates in Japan
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Consumer growth in India
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Commodity producers in Latin America
4. Active vs. Passive Approaches
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Passive global ETFs (e.g., Vanguard Total International Stock ETF, iShares MSCI ACWI ex-US) provide broad exposure.
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Active managers may add value in emerging or frontier markets, where inefficiencies create opportunities, however come with higher expenses.
Practical Approaches to Implementing Global Investment Strategies
Let’s break down how an investor might practically add global diversification to their portfolio.
Using Global ETFs
ETFs offer cost-efficient diversification. Examples include:
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Vanguard FTSE All-World ex-US ETF (VEU) – Developed and emerging markets outside the U.S.
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iShares MSCI Emerging Markets ETF (EEM) – Focused on high-growth economies.
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SPDR Euro Stoxx 50 ETF (FEZ) – Exposure to leading European companies.
Allocating by Percentage
Many investors use a core-satellite approach:
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60% U.S. equities (core)
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30% international developed markets
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10% emerging markets
This balances home-country familiarity with global opportunity.
Factor Investing Across Borders
Consider applying factors like value, momentum, or dividend yield across international markets. For example, Japanese equities have seen strong momentum, while European stocks offer high dividends.
Risks of Global Investment Strategies
Diversification does not eliminate risk. Investors should be mindful of:
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Currency volatility – While the dollar’s decline has helped in 2025, it may not always be the case.
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Political and regulatory risk – Emerging markets can face instability or policy uncertainty.
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Liquidity issues – Smaller markets may be harder to enter and exit efficiently.
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Tracking error – Active managers may deviate from benchmarks in ways that disappoint investors.
Acknowledging these risks helps investors approach global strategies with a balanced perspective.
Lessons from the Past
History provides valuable lessons on the importance of global diversification:
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2000–2010 “Lost Decade” for U.S. equities – While U.S. stocks were flat, emerging markets surged.
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2010s U.S. dominance – U.S. tech stocks massively outperformed, overshadowing global peers.
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2025 reversal – A weaker dollar and stronger foreign markets highlight how quickly fortunes can change.
The lesson? Leadership rotates. No market outperforms forever. Long-term investors benefit from spreading exposure globally.
The Role of Alternative Assets in Global Investment Strategies
Global diversification doesn’t stop at equities. Investors can also consider:
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Commodities – Oil, metals, and agricultural products offer global exposure tied to real assets.
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Real estate investment trusts (REITs) – Global REITs provide exposure to property markets outside the U.S.
These asset classes can complement a global equity strategy by reducing correlation and enhancing resilience. We recently did a back test using REITs and Gold in a 50/30/20 portfolio, and you should absolutely check out the results if you are interested in other forms of diversification.
Case Study: An Investor in 2025
Imagine two investors in January 2025:
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Investor A holds only U.S. equities. Their portfolio is flat as the S&P 500 struggles with earnings pressures.
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Investor B holds 70% U.S. equities, 20% developed international equities, and 10% emerging markets.
By September 2025, Investor B is outperforming Investor A, thanks to:
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Currency gains from a weaker dollar.
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Exposure to booming Indian equities.
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Higher dividends from European companies.
The difference underscores why global investment strategies can provide meaningful diversification benefits.
How Much Should You Allocate Globally?
There is no one-size-fits-all answer, but some guidelines include:
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Conservative investors – 20–30% international exposure.
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Moderate investors – 30–40% international exposure.
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Aggressive investors – 40–50% international exposure, including emerging and frontier markets.
Ultimately, the allocation should reflect your risk tolerance, time horizon, and confidence in U.S. vs. non-U.S. growth.
Reflecting on Your Global Investment Strategies
As 2025 shows, the era of U.S. equity dominance may be giving way to a more balanced global landscape. While the U.S. will remain an essential anchor in portfolios, ignoring opportunities abroad could mean missing out on growth, income, and currency benefits.
Global investment strategies are not just about chasing short-term performance—they’re about building resilient, forward-looking portfolios that can thrive across economic cycles.
As you reflect on your own portfolio, ask yourself:
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Am I overexposed to U.S. equities?
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How would my portfolio perform if the dollar weakens further?
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Which regions or sectors abroad align with my investment goals?
By answering these questions and exploring global opportunities, you can position your portfolio for a world where diversification is not just smart, it’s essential.
If I haven’t sold you on global diversification just yet, watch this video from one of my favorite academic finance professionals, Ben Felix. He is very smart and explains technically why you should be invested in global markets. I am not affiliated with him nor his company; I just find all of his content very informative and fascinating.
Disclaimer:
This post contains mentions of publicly traded securities. This post is not a recommendation to buy, sell, or trade said securities. Please visit my personal portfolio to see my financial positions for clarity of my biases or inclinations.