Should investors dump U.S. stocks for international equities? Experts weigh in

Stocks, providing broad exposure to both markets.

With the recent volatility in U.S. stocks due to escalating trade tensions initiated by President Donald Trump, some investors are now turning their attention to international equities. The S&P 500, Dow, and Nasdaq have all seen significant declines since the tariff plan was announced, prompting investors to reconsider their U.S. stock holdings.

Christine Benz, director of personal finance and retirement planning at Morningstar, believes that there is a strong case for international diversification, especially given recent developments. Jacob Manoukian, head of U.S. investment strategy at J.P. Morgan Private Bank, also suggests that global diversification could be a prudent strategy in the current market environment.

However, not everyone is convinced that abandoning U.S. stocks is the best move. Paul Christopher, head of global investment strategy at the Wells Fargo Investment Institute, argues that the United States is still a quality market that offers attractive opportunities for investors. U.S. stocks have outperformed the rest of the world for several years, and despite recent volatility, they may still present a compelling investment case.

According to analysts at J.P. Morgan Private Bank, the S&P 500 has delivered strong returns in the past, outperforming developed markets by a significant margin. However, the recent turmoil in the markets has highlighted the importance of diversification, with U.S. equities facing increased uncertainty due to trade tensions and tariff policies.

The ongoing trade war with China and the imposition of tariffs on various countries have raised concerns about the growth of the U.S. economy. As a result, U.S. markets have been under pressure, with the S&P 500, Nasdaq Composite, and Dow Jones Industrial Average all experiencing losses this year. In contrast, the MSCI EAFE index, which tracks developed markets outside of the U.S. and Canada, has seen positive returns.

The sharp sell-off in U.S. markets has led some analysts to question whether U.S. assets are as attractive as they once were, and whether U.S. equity market exceptionalism is coming to an end. Rising trade tensions have also affected the bond market and the value of the U.S. dollar, further adding to the uncertainty in the markets.

Despite the recent challenges facing U.S. stocks, history suggests that market cycles tend to shift between U.S. and international equities. Based on past performance, non-U.S. equities are overdue for a period of outperformance, which could present opportunities for investors looking to diversify their portfolios.

In conclusion, while the recent volatility in U.S. stocks may have prompted some investors to reconsider their investment strategies, it is essential to tread carefully and consider the long-term implications of any changes. Diversification, both domestically and internationally, can help mitigate risk and capture opportunities in a dynamic market environment. As retirement approaches, it may be wise for individual investors to consider reducing exposure to international stocks in order to minimize the volatility that can result from fluctuations in foreign exchange rates. Certified financial planner Douglas Boneparth, president of Bone Fide Wealth in New York, emphasizes the importance of international exposure in a well-diversified portfolio. While international asset classes may not have performed as well in recent years, they have helped to mitigate the impact of tariff volatility.

Boneparth advises against making hasty decisions to add non-U.S. equities to one’s portfolio. It is crucial to avoid locking in losses on U.S. stocks in pursuit of international exposure. Instead, investors should carefully assess their current allocations and rebalance as necessary. Rebalancing allows for a strategic shift from less risky assets to equities, taking advantage of market dips.

Barry Glassman, founder and president of Glassman Wealth Services, notes a recent uptick in client interest in increasing investments overseas. With both stocks and currency outperforming U.S. indices, foreign stocks have garnered greater attention. Glassman maintains a two-thirds to one-third ratio of U.S. stocks to foreign stock funds in the portfolios he manages. While he acknowledges the appeal of foreign investments, Glassman emphasizes the importance of maintaining a consistent foreign allocation over time.

In conclusion, while international stocks can offer diversification benefits, it is essential for investors to approach these investments thoughtfully. By carefully evaluating their portfolios and rebalancing strategically, investors can navigate market volatility and position themselves for long-term financial success.