In 2025 Keep Your Investments Global

Today’s all-too-obvious headwinds are already weakening.

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Most investors received little more than a lump of coal in their stockings from last year’s Santa Claus rally. But 2024 was a great year to own stocks. And just two trading days in, 2025 is off to a good start.

Most international or non-US stocks, however, remain notable underperformers. And many investors are understandably asking whether they should now avoid investing outside the US.

That would be a mistake.

There are good reasons why global stock markets have lagged. The Federal Reserve’s tight monetary policy since early 2022 has pushed US bond yields to levels not seen in decades. And even risk-free money market funds and other cash alternatives pay between 4 and 5 percent on an annualized basis.

High yields have increased the attraction of US dollar investments. And they’ve correspondingly diminished the appeal of stocks and bonds priced and paying dividends in Euros, Yen, Australian and Canadian dollars, Chinese Yuan—and virtually other currency as well.

If you’ve traveled outside the US recently, you’ve no doubt noticed more favorable exchange rates for your dollars. You can now swap a US dollar for more than 97 Euro cents, for example. That compares to just 81 cents four years ago. The Canadian dollar has dropped to less than 70 US cents. That’s not too far from loony’s all-time low in the era of floating exchange rates—which began in the early 1970s—of around 62 US cents.

The US economy has also remained relatively healthy, even as the Fed has gone to war against inflation. That’s a contrast to much of the world. The world’s second largest economy China, for example, has failed to re-ignite growth, despite heavy ongoing government stimulus.

Then there are the trade tariffs—initially enacted during the first Trump Administration, doubled down on during the Biden years and apparently set to rise again under Trump 2.0.

Tariff barriers to trade ultimately destroy wealth. That’s mostly in the countries that erect them, as importers pass the additional cost onto consumers and businesses as a defacto tax. That’s money that could be spent elsewhere. And while local industry can benefit near-term from a captive market, it’s fair to say protectionist measures of the past have discouraged innovation needed to compete long-term—for example in the US auto industry.

Nonetheless, the US is still the world’s most important consumer market by far. And already high tariffs—along with desire to diversify supply chains at a time of rising geopolitical tensions—have set off a wave of “reshoring” of business to the US. That too has increased demand for US investments and US dollars, to the relative disadvantage of international stocks and investments.

More than 2,000 non-US companies list their stocks on US exchanges with American Depositary Receipts. That’s somewhat less than in previous years—the US government has forcibly delisted a number of Chinese stocks for alleged ties to the Communist Party. But investors still have some 70 countries to choose from. And most retirement plans, 529s and other institutional funds have at least one global stock or bond option.

The value of these stocks and funds has been directly, negatively affected by the rising US dollar.

The US Dollar Index (DXY) represents the US dollar’s performance against a basket of currencies. Since late September—around the time when the Federal Reserve announced its first rate cut—the DXY has risen roughly 9%.

That’s a direct hit of 9% to the US dollar value of global stocks and bonds from exchange rate swings alone.

One of my early mentors in the investment advisory business, Richard Band, once wrote currency values are like aircraft carriers. Once they get going in one direction, they can take a long time to turn around. But so long as the country in question still exists, they eventually revert to the mean.

That’s certainly the lesson to draw from the very long-term graph above of the DXY. And investors willing to bet on eventual reversals have done extremely well, provided they’ve chosen high quality stocks.

I’m not forecasting an end to US dollar dominance in the global economy. For all the handwringing about this or that country or bloc planning its demise, there simply is no alternative. And I’m not among those prophesying federal deficits necessarily mean a dollar crash.

But the US dollar has run a long way in one direction. And at this point, any number of things could cause a turn to give foreign currencies (and stocks) a big lift.

That’s one reason to stick with your international exposure. Another is simply many of the world’s most dominant and growing companies are non-US.

Take the mining industry, which by the way is absolutely essential to the artificial intelligence boom. You can get exposure to copper with US-based companies alone though Freeport McMoRan (NYSE: FCX). But the world’s largest uranium miner outside Russia is Canadian, Cameco (TSX: CCO, NYSE: CCJ). And the global natural resources kingpin is Australia based, BHP Group (ASX: BHP, NYSE: BHP).

Investing only US in other words will shut you off from many of the world’s premier growth opportunities. And then there’s the safety angle: Diversifying your portfolio among multiple stocks and sectors offers protection from unexpected setbacks in an industry or at a single company. Placing bets among multiple countries does the same if the US stock market has a lagging year or two.

Even if all you do is stick with the global fund in your 529 or 401K, I believe you’ll be thanking yourself in coming months. Better, consider buying individual stocks of high quality non-US companies, preferably those paying big dividends.