Investment Strategy2025-09-30
U.S. Market Concentration Risk... Revisiting International Diversification Strategy
As U.S. equities now account for over 60% of global market capitalization, concentration risk is growing for investors focused on U.S. ETFs. We examine international diversification strategies using VXUS, VEA, and VWO.
관리자CNBC
U.S. equities have been the preferred choice of global investors thanks to outstanding performance over the past decade. The S&P 500’s average annual return of 13% far outpaced developed-market averages of 7% and emerging-market averages of 4%, driven largely by the growth of Big Tech companies. As a result, U.S. equities now represent roughly 62% of total global stock market capitalization, and many investors have concentrated 80–100% of their portfolios in U.S. assets. Historically, however, no single country has maintained top performance forever—Japan led in the 1980s, Europe in the early 2000s, and emerging markets in the mid-2000s. To reduce U.S. concentration risk and lower long-term volatility, international diversification is necessary, and ETFs such as VXUS (ex-U.S. total market), VEA (developed markets), and VWO (emerging markets) provide effective tools for doing so. An asset allocation calculator can help determine the appropriate weight for international assets, while a rebalancing strategy allows you to capitalize on performance differences across regions.
The Case for International Diversification and Historical Lessons
International diversification is a core strategy for reducing single-country risk and capturing global growth opportunities. While the U.S. has delivered strong performance over the past decade, during the “Lost Decade” of 2000–2009 the S&P 500 averaged −1% per year while emerging markets averaged +10%. In the 1980s, Japan rose more than 20% annually and at one point represented 45% of global market capitalization—only to stagnate for more than 30 years after its bubble burst in 1990. This history illustrates the dangers of concentrating heavily in a single country. Currency diversification also matters. Holding only U.S. assets exposes your entire portfolio to dollar fluctuations, whereas including European, Japanese, and emerging-market assets spreads currency risk. During periods of dollar weakness, international assets produce higher dollar-denominated returns, adding stability to the portfolio. From a valuation perspective, international diversification is attractive as well. The S&P 500 currently trades at roughly 21x earnings, compared with 14x for Europe’s STOXX 600, 15x for Japan’s TOPIX, and 12x for the MSCI Emerging Markets index—all relatively undervalued. From a long-run mean-reversion standpoint, cheaper markets have the potential to deliver higher future returns. Global GDP weights are another consideration. The U.S. accounts for about 25% of global GDP but represents 62% of equity market capitalization—more than double its economic share. China, by contrast, represents 18% of GDP but only 5% of market cap. Over the long term, it is reasonable to allocate internationally in anticipation of market caps converging toward economic scale.
VXUS ETF: Features and a One-Stop Solution
VXUS (Vanguard Total International Stock ETF) invests in approximately 8,100 companies across developed and emerging markets worldwide, excluding the United States. It tracks Vanguard’s FTSE Global All Cap ex US Index and carries an expense ratio of just 0.08%. The geographic allocation is broadly diversified: Europe 39%, Asia-Pacific 27%, emerging markets 25%, Canada 7%, and other regions 2%. By country, the top weights are Japan 15%, United Kingdom 9%, China 8%, Canada 7%, France 6%, Switzerland 6%, and Germany 5%. Top holdings include Taiwan Semiconductor (TSMC), Nestlé, Samsung Electronics, ASML, and Roche—leading companies from their respective countries. VXUS’s greatest advantage is providing exposure to the entire ex-U.S. world through a single ETF. Because developed- and emerging-market weights are automatically adjusted on a market-cap basis, investors need no additional management. With 8,100 holdings, individual country and stock risk is extremely low. The dividend yield is approximately 3.2%, higher than the S&P 500’s 1.5%, reflecting the more generous payout policies of European and emerging-market companies. Over the past 10 years, VXUS has returned roughly 5.1% annually versus the S&P 500’s 13%, but during 2000–2009 it averaged +2% per year compared with the S&P 500’s −1%. VXUS is ideal for investors seeking simple global diversification. A classic 60/40 portfolio can be structured as 60% U.S. + 40% VXUS for true global exposure. A popular alternative is a two-ETF portfolio of VTI (U.S. total market) 60% + VXUS 40%, offering straightforward worldwide equity coverage.
Customized International Allocation with VEA and VWO
Holding VEA (developed markets) and VWO (emerging markets) separately instead of VXUS lets you adjust regional weights according to your own judgment. VEA (Vanguard FTSE Developed Markets ETF) invests in approximately 4,000 companies in developed markets outside the U.S. with an expense ratio of 0.05%—lower than VXUS. Top country weights are Japan 20%, United Kingdom 12%, Canada 10%, France 8%, Germany 7%, and Switzerland 7%, with a dividend yield of about 3.0%. VEA’s defining characteristic is its composition of economically stable, transparently regulated developed markets, which results in lower volatility and greater predictability. Its 10-year average annual return of roughly 5.8% was slightly higher than VXUS, largely because of emerging-market underperformance. VWO (Vanguard FTSE Emerging Markets ETF) invests in approximately 5,300 companies in emerging markets with an expense ratio of 0.08%. Top country weights are China 28%, India 19%, Taiwan 17%, South Korea 12%, and Brazil 5%, with a dividend yield of about 3.5%—the highest among the three. VWO offers significant long-term growth potential through high economic growth rates and undervalued valuations, but carries greater volatility due to political instability, currency fluctuations, and regulatory risk. Its 10-year average annual return of roughly 3.5% has been disappointing, yet during 2000–2009 it delivered +10% annually—the top performance among major regions. Suggested VEA/VWO allocation frameworks: conservative investors may prefer VEA 80% + VWO 20% for stability; balanced investors may use VEA 70% + VWO 30% to approximate market-cap weights; aggressive investors may choose VEA 60% + VWO 40% to lean into emerging-market growth potential. For example, a portfolio targeting 60% U.S. + 25% developed markets ex-U.S. + 15% emerging markets can be simply implemented as VOO 60% + VEA 25% + VWO 15%.
Rebalancing Strategy for an Internationally Diversified Portfolio
Periodic rebalancing is the cornerstone of international diversification. Because regional markets perform differently over time, allocations drift from their targets—and the act of rebalancing naturally produces a “buy low, sell high” effect. For example, if you start with 60% U.S. and 40% VXUS and after one year U.S. assets rise 15% while VXUS rises 5%, the weights shift to roughly 65% : 35%. At that point you sell some U.S. assets and buy VXUS to restore the 60:40 split—locking in some gains from the relatively overvalued U.S. market and adding to the comparatively cheaper international allocation. If international assets outperform instead, you rebalance in the opposite direction. A rebalancing frequency of once or twice per year is appropriate; rebalancing too frequently increases trading costs and reduces tax efficiency. A rebalancing calculator lets you enter the current value of each asset and your target weights so it can automatically compute the amounts to buy or sell. Using new contributions to rebalance is also effective. When adding money each month, directing it entirely to the underweight asset moves the portfolio toward the target without selling existing positions—saving on taxes and transaction costs. For instance, if U.S. exposure is above target, direct several months of new contributions entirely to VXUS to bring the ratio back in line. Currency hedging is generally unnecessary for long-term investors. Hedging costs run 1–2% per year, and over the long term currency movements tend to mean-revert and offset each other. Currency diversification itself serves as a natural hedge against dollar weakness.
International Asset Allocation Guide by Life Stage
The appropriate international allocation depends on your age and investment goals. Aggressive investors in their 20s–30s might target 70% U.S. + 15% developed markets + 15% emerging markets to maximize growth potential. A higher emerging-market weight pursues long-run growth, and the ability to tolerate volatility at a young age allows for an aggressive allocation—for example, QQQ 35% + VOO 35% + VEA 15% + VWO 15%. Balanced investors in their 40s–50s might target 60% U.S. + 25% developed markets + 15% emerging markets for greater stability. Allocating close to market-cap weights aims at global average returns while reducing volatility by trimming the emerging-market share—for example, VOO 40% + SCHD 20% + VEA 25% + VWO 10% + AGG 5%. Conservative investors aged 60 and above might target 50% U.S. + 30% developed markets + 20% bonds, prioritizing capital preservation. Eliminating the emerging-market allocation in favor of stable developed-market equities and bonds, and increasing dividend-paying holdings for cash flow—for example, SCHD 25% + VYM 25% + VEA 30% + AGG 15% + TLT 5%. Across all age groups, allocating at least 20–30% to international assets is recommended to reduce U.S. concentration risk. An asset allocation calculator can suggest an optimal regional allocation based on your age, risk tolerance, and investment horizon, providing a foundation for building your own global portfolio.
결론
Despite the strong performance of U.S. equities, concentrating in a single country carries substantial long-term risk. Whether through VXUS for simplicity or a VEA + VWO combination for customization, adding international diversification to your portfolio enhances stability and positions you to capture global growth opportunities. Use an asset allocation calculator to set your optimal regional weights, and employ a rebalancing calculator to adjust those weights regularly—these two steps are the keys to successful international diversification.
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#international diversification#VXUS#VEA#VWO#global investing#asset allocation calculator#rebalancing calculator
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