The investment industry often champions international diversification, touting lower valuations and uncorrelated returns as key benefits. However, this perspective overlooks the unique strengths of the U.S. market, driven by a culture of innovation, world-class education, disruptive entrepreneurship, and dynamic immigration. These factors fuel unparalleled growth, making U.S. investments more compelling than international alternatives, despite the industry’s push for more international exposure.
Want proof? Take a look at the returns of the US stock market vs. international markets.
The discrepancy of returns between the United States and international markets is also proven when using different time frames. The bottom line, international returns have been subpar when compared to the United States over many time periods and economic conditions.
The U.S. thrives on a culture of experimentation and innovation unmatched globally. Silicon Valley and many areas around the country are a crucible for groundbreaking technologies, from software, computer chips, AI to biotech. Companies like Amazon, Tesla, and Nvidia consistently redefine industries, delivering exponential growth that overshadows the incremental gains of many international markets. This disruptive spirit is absent in many regions where bureaucratic inertia or risk-averse cultures stifle progress.
Many big investment firms argue that international markets offer “value” due to lower price-to-earnings ratios, but value without growth is a hollow promise, and the proof is in the historical returns.
A cheap stock with low-to-stagnant growth will rarely outperform a fast-growing dynamic U.S. company trading at a premium.
America’s universities produce cutting-edge research and a steady stream of talent. These institutions foster entrepreneurs who launch unicorns, not just workers who maintain the status quo. In contrast, many international education systems prioritize rote learning over creativity, limiting their ability to generate transformative businesses. The U.S. also benefits from immigration, attracting ambitious minds from around the globe. Immigrants like Elon Musk and Satya Nadella have reshaped industries, contributing to a virtuous cycle of innovation and growth that most countries can’t replicate.
The industry’s claim that international markets reduce portfolio risk through low correlations is outdated thinking.
Globalization and interconnected financial systems mean that markets now move in tandem more than ever, especially during crises, correlations between U.S. and international markets often approach 1.0, negating diversification benefits. Meanwhile, U.S. growth stocks, particularly in tech, have consistently outperformed international indices over decades. Over the last 20 years the S&P 500 has gained over 600%, while many international markets have lagged significantly.
From time-to-time international investing may offer tactical opportunities, but the U.S. has significant structural advantages—innovation, education, disruption, and immigration—which makes it the engine of long-term wealth creation. Betting against America’s growth is a mistake the investment industry continues to make, so ignore what many so-called “experts” tout about the strength of international investing.
-Paul R. Rossi, CFA