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Over the past decade, U.S. investors haven't had much reason to look overseas for growth. Many U.S. stock benchmarks have outperformed their international counterparts, rewarding portfolios that stayed close to home.

Take Vanguard's major U.S. and international ETFs: As of the end of last month, the U.S. VTI fund had returned an average of 14.8% annually over the last 10 years — nearly quadrupling in value. Its international counterpart VXUS, on the other hand, returned an average of 9.7% a year, growing just 2.4 times.

As a result, America's share of the global market has expanded: Today U.S. stocks represent 64% of the MSCI All Country World Index, up from 50% in 2005.

But too much of a good thing can get tricky. While riding America's winning streak has paid off for many investors, it has also created a vulnerability: extreme market concentration. For millions of everyday investors whose 401(k)s and IRAs are parked in broad U.S. index funds, their financial futures are increasingly dependent on the fortunes of a few massive companies responsible for the momentum.

"Just like investing in a single stock exposes you to that company's prospects, investing in a single country can introduce its own form of concentration risk," said Mario Ismailanji, an investment strategist at SoFi. "It exposes you to whatever unique things are happening in that country."

Consider the S&P 500. Because of the rally in mega-cap tech, just 10 of its 500 companies accounted for nearly 40% of the U.S. benchmark's market value in mid-2025 — the greatest concentration in roughly 60 years, according to S&P Dow Jones Indices.

In fact, since ChatGPT's 2022 debut ushered in the mainstream use of artificial intelligence, 65% to 75% of the S&P 500's returns and profit growth have come from the 42 companies linked to AI, J.P. Morgan Asset & Wealth Management said at the start of this year. Without them, the S&P 500 would have underperformed Europe, Japan and China, according to the firm.

Anchoring the top 10 stocks are the so-called "Magnificent Seven" — Apple, Microsoft, Alphabet, Amazon, Meta, Nvidia and Tesla. Because they're all tied to the same AI engine, any drop in demand for either AI or the data centers behind the technology could have major consequences for the U.S. market.

"They increasingly behave as a single risk factor rather than as seven independent sources of return," S&P Global Market Intelligence's Kamil Zielinski wrote in August.

That single risk factor gets even harder to ignore when U.S. stocks start losing their luster. Last year, the tables turned and it was Vanguard's international fund that outpaced its U.S. counterpart, gaining 32% compared to 17%.

"We believe now is the time to diversify globally," Morgan Stanley Deputy Chief Investment Officer Jitania Kandhari wrote last year. "Investors who fail to look beyond U.S. borders may risk missing the next market cycle."

To be sure, diversification isn't a silver bullet. It doesn't eliminate risk or guarantee higher returns. And geographical diversification can introduce new risks related to foreign currencies, politics or regulations.

So what?

Adding international stocks to a U.S.-heavy portfolio can require giving up some upside when U.S. stocks are on a tear. But it can also help spread investment risk, potentially smoothing out returns during periods of market volatility. Depending on your financial goals and risk tolerance, that may be a worthwhile tradeoff.

"Market cycles may ebb and flow but they don't last forever," Ismailanji said. "Financial market history is littered with examples of different regions, sectors, or asset classes outperforming for a period of time before eventually underperforming."

Related Reading

International Diversification Is Finally Paying Off (Morningstar)

Portfolio Diversification: What It Is and Why It's Important (SoFi)

Equity Diversification in an Era of Concentration (Charles Schwab)

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