How much of my portfolio should be outside the US?
More than most American portfolios hold — building a plan on US returns is a bet on repeating the best major-market record of the twentieth century, not a neutral assumption.
The US was an outlier, and its record is the one every projection tool is calibrated on, including the ones on this site. That is a survivorship-flavoured assumption: the country that did best is the one whose history is most readily available, and planning against it quietly builds in an optimistic base case.
The DiversificationOwning enough different things that no single outcome decides your result. It is the one adjustment that reduces risk without a matching reduction in expected return.Read the evidence on this → argument is separate from the forecasting one. You do not need to believe international will outperform to want to own it; you need only to notice that concentrating in a single country's market is an uncompensated risk, and that most individual markets have had decades that looked like the US's lost decade.
Global market weights are the neutral starting point rather than a recommendation. Deviating from them is a position, and worth being able to state a reason for.
When the answer is different
- Your liabilities are in your home currency, so some home bias is rational — the question is how much, not whether.
- International funds often cost more and can carry a foreign withholding tax drag, which is a real reason to weigh cost alongside diversification.
Put your own numbers to it
Every answer here is general. These are not.
- Allocation and risk capacity
How much risk can I take, and how much can I stand?
- Monte Carlo projection
What is the range of outcomes, not just the average?
The research this rests on
Each note states its claim, rates how strong the evidence actually is, and lists the conditions under which it fails.
- Building a plan on US returns is a bet, not a neutral assumption
The US equity market was among the best performers of the twentieth century, so projections calibrated to US history embed a survivorship-flavoured assumption. (moderate)
- Most individual stocks lose money; a few pay for everything
The majority of individual stocks underperform Treasury bills over their lifetimes, and aggregate stock market wealth creation traces to a small minority of firms. (strong)
- Fees are the most reliable predictor of returns you control
Across funds and time periods, lower costs predict higher net returns more consistently than any other observable fund characteristic. (strong)
Terms used on this page
The same definitions the underlined words open, written out so nothing on this page depends on a click.
- Diversification
- Owning enough different things that no single outcome decides your result. It is the one adjustment that reduces risk without a matching reduction in expected return. Evidence →