Global equity investing: The benefits of diversification and sizing your allocation

Vanguard

Brian Scott

Research

14 Pages

Vanguard explores how global equity diversification and sizing international exposure can shape portfolio risk and outcomes. Investors still overweight domestic markets despite evidence that adding international equities can meaningfully reduce volatility, with diminishing benefits beyond a certain threshold.

Key Takeaways

Home Bias Persists: Investors allocate far above domestic market weights, often exceeding global benchmarks by 20% to 50%, limiting diversification benefits across regions.
Optimal Allocation Range: Volatility reduction peaks when international equities reach roughly 40% to 50% of portfolios, with most benefits already achieved near the 20% level.
Diminishing Diversification Gains: Moving beyond 50% international exposure shows limited incremental volatility reduction, suggesting marginal benefits decline despite increased global exposure.
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