International stocks pummelled the S&P 500 with 32% returns in 2025. You might want them in your portfolio now, but you should know the risks

After years of U.S. domination, especially in big tech, this deep shift may have investors wondering if it’s time to diversify beyond America.

“Nearly every investor that we speak to could probably benefit from adding some international allocations,” Kristy Akullian, chief of iShares investment strategy for the Americas at BlackRock, told CNBC (1).

Why international markets outperformed in 2025

A few big forces lined up in favor of foreign stocks last year.

Economic growth outside the U.S. shot up, especially in parts of Asia and Europe. Emerging economies like China and India expanded faster than the U.S., and Europe benefited from fiscal stimulus and increased defense spending.

For one, the artificial intelligence (AI) boom spread far and wide beyond Silicon Valley. Chipmakers and tech firms in Asia saw rising demand as AI investment went up worldwide, reports CNN (2). Asian markets rode that momentum as key links in the AI supply chain.

Another factor was that the U.S. dollar index fell over 9% in 2025, its worst year in nearly a decade. When the dollar declines, returns from foreign investments translate into more dollars when converted back, giving international stocks an extra boost.

“A lot of things went right for international stocks in 2025,” Michael Reynolds, vice president of investment strategy at wealth management firm Glenmede, told CNN.

American investors focused on the S&P 500 are heavily concentrated in tech companies tied to AI, with over one-third of the index weighted toward tech stocks, increasing exposure risk. Meanwhile, international stocks offer exposure to different economies, sectors and currencies, and this diversity can help smooth returns over time.

Of course, there’s no guarantee 2025’s trend will continue, so while adding international exposure might be a strategy there are some risks to keep in mind:

• Emerging markets are more volatile, and inherently come with more risk
• Currency trends can reverse and if the dollar strengthens again, it could erase some gains
• Chasing performance after a strong year can backfire if the momentum fades

Adding international exposure

If you’re thinking about diversifying, here are a few things investors may want to consider first.

Decide how much is right for you: How much international exposure is dependent on your situation. If you’re younger with potentially decades to ride out market swings, you might be more comfortable taking on more, but if you’re a retiree you may prefer a lighter touch.

Stability vs. growth: Developed markets like Europe and Japan tend to be more stable. Emerging markets can potentially offer faster growth but come with sharper ups and downs. Some investors split the difference and hold a mix of both.