International Diversification: Smart Strategy or Portfolio Zombie?

For decades, investors have been told that international diversification is essential.

“Don’t have home country bias.”

“Own the whole world.”

“International stocks reduce risk.”

I heard all of it when I started in this industry back in the 1990s. In fact, I believed it myself for a while because that was simply the conventional wisdom at the time.

But over the years, something about it never sat right with me.

If international investing is supposed to reduce risk and improve returns, then why does it often feel like investors are taking on more complexity, more volatility, and more uncertainty… without consistently better results to show for it?

My team and I spend a tremendous amount of time studying market history, trends, and long-term investment behavior. And after hundreds of hours researching markets across countries, economies, and decades of data, I’ve come to a conclusion that challenges a lot of traditional investing advice:

A large international allocation may actually be hurting more portfolios than helping them.

In my book, Unleash Your Financial Superpowers, I talk about the importance of identifying the “financial villains” that quietly work against investors over time. Some villains create fear.

Others create confusion. Some tempt investors into emotional decisions.

And some behave like zombies.

Slow-moving. Resource-consuming. Hard to notice at first.

In my opinion, that’s how many international allocations behave in modern portfolios.

The Traditional Argument for International Investing

The typical recommendation from many advisors and institutions is to place somewhere between 25% and 40% of your portfolio into international equities.

The reasoning sounds logical.

After all:

• Roughly 75% of global GDP exists outside the United States

• Many major global companies are international

• Different countries experience different economic cycles

• Diversification is supposed to reduce risk

On paper, it sounds smart.

But investing is not just about what sounds good theoretically. It’s about how investments actually behave in the real world over long periods of time.

And that’s where the conversation gets more interesting.

International Investing Adds More Than Just Stock Risk

When you invest internationally, you are not simply buying stocks in another country.

You are also taking on:

• Currency exchange risk

• Geopolitical risk

• Political instability

• Regulatory changes

• Foreign policy risk

• Economic uncertainty across multiple governments and regions

That matters.

Because now you’re layering several additional forms of risk on top of normal market volatility.

The Performance Problem Nobody Talks About

When I talk about international markets in this context, I’m referring primarily to the MSCI

EAFE Index — developed international markets like:

• Germany

• France

• Japan

• The UK

• Australia

• Italy

Believe it or not, from March 1987 through December 2025, the MSCI EAFE Index only averaged about 5.75% annually.

Let that sink in for a moment.

About 5.75% per year over nearly four decades.

Meanwhile, investors were taking on:

• Currency risk

• International political risk

• Additional volatility

• Foreign market instability

To me, that’s what I call uncompensated risk.

More risk without meaningfully better long-term returns.

Historically:

• Returns were under 10% nearly 60% of the time

• Roughly one-quarter of the time, returns were worse than negative 5%

• Investors experienced stock-market-type volatility with bond-like returns

The Danger of “Zombie Investing”

In Unleash Your Financial Superpowers, I talk about the idea that many investors drift financially without realizing it. They inherit conventional wisdom, accept generic portfolio models, and continue following strategies simply because “that’s what everyone does.”

That can be dangerous.

Because financial zombies don’t always look dangerous at first.

Sometimes zombie investing looks perfectly normal:

• A portfolio allocation you haven’t questioned in years

• A fund you own because someone told you diversification is always good

• A strategy that sounds sophisticated but quietly drags on long-term performance

• A “set it and forget it” approach that no longer aligns with reality

In the book, I explain that too many successful families are “drifting financially” without a clear, intentional plan.

I believe that happens frequently with international investing.

Investors allocate 25% to 40% internationally once… and then never revisit it again.

Meanwhile:

• Markets change

• Economies change

• Political conditions change

• Currency relationships change

• Risk changes

But the allocation stays frozen in time.

That’s what I call zombie investing.

A Better Approach: Tactical International Exposure

I don’t mean to say that international investing should always be avoided.

It means I believe it should be intentional and tactical.

I often describe international exposure like an accordion:

• Sometimes expanded

• Sometimes contracted

• Sometimes nearly closed altogether

In the investment world, this is often called tactical allocation.

The goal is not prediction. We are not trying to guess headlines or forecast elections. Instead, we follow measurable signals and trends. When international markets demonstrate sustained relative strength, exposure may increase. When trends weaken, exposure may shrink dramatically.

That philosophy ties directly into our Three Golden Rules of Investing:

1. Have a game plan for up markets

2. Have a game plan for down markets

3. Have a clear, data-based way to tell the difference

We invest based on evidence and discipline, not emotion or assumptions.

The Biggest Mistake Investors Make

The biggest mistake I see is not necessarily owning international investments.

It’s owning them without a clear plan.

Too many investors set an allocation years ago and never revisit it. They look at total portfolio performance but rarely stop to ask:

• Is this allocation still working?

• Is the risk justified?

• Does this still align with my goals?

• Is this helping or quietly dragging on long-term performance?

Markets change. Economies change. The world changes.

Your portfolio should evolve too.

— Greg Luken

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