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Your Portfolio Needs a Vacation By Spencer Jakab

China's economic growth has cooled

and French debt was downgraded , but neither spoiled investors' mood. U.S. stocks appear poised for a strong start to the week with plenty of corporate earnings on tap in coming days, including Netflix, Tesla, Coca-Cola, IBM, Intel and Procter & Gamble.

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Sometimes you dodge a bullet by going with your gut.

Financial theory tells us that one of the only free lunches is having a diversified portfolio, which can produce similar returns to a more concentrated one with less choppiness.

But investors around the world shortchange themselves through home-country bias. Because of greater familiarity with their domestic stock market, they own too much relative to its weight in the world.

That's an issue for a Swede or a Brazilian. It was an absolute nightmare

for Japanese investors who only had eyes for their red-hot market in the 1980s. It took 34 years to break even after its bubble burst.

Diversification has been easier for Americans to ignore, and profitable, too. Over the past 15 years, American stocks' total return has trounced the rest of the developed world by nearly 500 percentage points.

Looking abroad has rarely been a better idea, though. U.S. stock valuations and the dollar look a lot like they have in the past when foreign stocks took the leadership baton. Since 1970, there have been six stretches when foreign developed-country stocks vastly outperformed.

A common retort is that U.S. companies like Nvidia, Apple and Microsoft are just better. A recent study by fund manager GMO mostly refutes that . About 80% of America's excess performance from 2010 through 2024 came from rising valuations and a stronger dollar, not corporate fundamentals. Both could reverse.

U.S. tech stocks are so huge, though, that you might not be out of the woods by spreading bets across all developed markets. Eight tech titans alone make up more than a quarter of the MSCI World Index, which tracks 1,320 companies. You would have faced similar issues back in 1990 with Japanese banks.

One radical way to avoid that is to own an equal-weighted version of the MSCI World. The U.S. makes up just 42% of it, with Nvidia having the same weight as obscure Belgian widget-makers.

That index has performed atrociously, though, trailing even the plain vanilla MSCI World in each of the past seven years. And such gimmicks really aren't necessary.

Neither is a wholesale shift to a portfolio that hews exactly to America's one-quarter weight in the world economy to hedge their bets. Many big U.S. companies that aren't richly priced tech juggernauts earn much of their money abroad.

And plenty of domestic index funds have lower exposure to the frothiest U.S. sectors-those that weight stocks by value or other measures, for example. Meanwhile, mixing in a smattering of foreign-index ETFs has never been easier or cheaper.

Dusting off your passport might become profitable, but there's no need to become a full-fledged expat to reap the benefits of a more-balanced portfolio.

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Stocks I'm Watching

A widespread outage linked to Amazon's Amazon Web Services affected many companies. Coinbase and Robinhood were among those whose services were impacted.

Zions Bancorp : The Salt Lake City-based bank is due to report earnings after markets close. Regional banks came under scrutiny

last week after Zions disclosed a large loss and alleged fraud by a set of borrowers.

Kering : The Gucci owner struck a $4.7 billion deal

with L'Oréal , selling its cologne-making brand House of Creed and licensing the fragrance rights for labels such as Balenciaga. Shares jumped about 4% in Paris.

Major companies including Tesla , Coca-Cola and Netflix are expected to publish results later this week.

One Big Chart

Luxury Brands' Stiffest Competition Is the Stuff They've Already Sold

For luxury brands trying to win back shoppers, second-hand sellers look like the ones to beat.

Demand for used luxury is currently stronger than for new goods.

What I'm Reading A worrying sign bubbling under the surface of the U.S. market: Defensive sectors are the best performers. ( WSJ ) China said economic momentum decelerated to its slowest pace in a year, putting Beijing on alert in the midst of hardball trade negotiations with the U.S. ( WSJ ) Beijing used bare-knuckle tactics in a multidecade effort to consolidate control over supplies of rare earths that are vital to high tech and defense. ( WSJ ) Brokerages battle to win over active investors. ( Barron's ) Five lessons on growth from this year's Nobel Prize winner in economics. ( Advisor Perspectives ) Today in Markets History

On this day in 1803, the U.S. Senate ratified the Louisiana Purchase Treaty, under which the U.S. paid France less than 3 cents an acre for 828,000 square miles of territory.

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About Me

Business and finance have fascinated me for a long time. Before writing this newsletter, I edited The Wall Street Journal's Heard on the Street team for a decade, wrote two investment books and managed a team of stock analysts at a global investment bank.

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This article is a text version of a Wall Street Journal newsletter published earlier today.

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October 20, 2025 06:38 ET (10:38 GMT)

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