Equity Returns (1995 to Present): US vs. International Markets

You’ve probably heard the advice to diversify your portfolio. It’s good advice. Most people believe that investing internationally is a smart way to do that.

But what if the data tells a different story?

In 1995, Vanguard made it possible for everyday investors to access international markets for the first time. Before that, if you weren’t wealthy or working with a big institution, foreign stocks weren’t really on the table. Suddenly, a regular person could invest in companies across Europe, Asia, and developing economies around the world.

So here’s the question worth asking: over the last 30 years, did that actually pay off?

We pulled the numbers on every major US and international equity category going back to 1995. What we found might surprise you, and it raises some bigger questions about how we think about global investing, inflation, and what “a good return” actually means.

Let’s get into it.

A Brief History: How Everyday Investors Got Access to International Markets

Before 1995, investing in foreign markets was mostly a game for the wealthy and institutional players. If you were a regular working person, you were pretty much stuck with whatever US options your 401(k) offered.

That changed in 1995 when Vanguard opened the door for everyday investors to access international markets through low-cost mutual funds. For the first time, you could put your money into Emerging Markets, International Small Caps, and International Value all without needing a financial advisor or a brokerage account loaded with fees.

That was a big deal. It meant that a teacher, a truck driver, or a factory worker could do what Wall Street had been doing for years.

But here’s the question we want to answer today: was it worth it? Did going global actually help the average investor build wealth over the last 30 years?

Let’s look at the data.

Data Note: This analysis covers 1995 to present. Some index funds (Global ex-US, US Mid-Cap, and US Small-Cap Value) weren’t available until 1996 to 1998. For those gap years, performance is approximated using active funds or academic data proxies to represent market behavior as closely as possible.

What Are International Equities, Anyway?

Before we get into the numbers, let’s define what we’re talking about. 

Developed International (ETF: VEA) These are companies in wealthy, stable countries outside the US. Think places like Germany, Japan, the UK, France, and Australia. These economies are mature and tend to be less volatile than emerging markets, but they also tend to grow more slowly.

European (ETF: VGK) This one focuses specifically on companies based in Europe. You’re looking at major economies like the UK, France, Germany, and Switzerland. Europe has a lot of strong, established companies but also deals with slower economic growth and some political headwinds that can drag on returns.

Pacific (ETF: VPL) This covers developed markets in the Asia-Pacific region, mainly Japan, Australia, South Korea, and Hong Kong. Japan makes up a big chunk of this category. Japan’s economy has struggled with low growth and deflation for decades, which helps explain why the Pacific was the worst-performing international category over our 30-year window.

Emerging Markets (ETF: VWO)

These are countries that are still developing their economies. Think China, India, Taiwan, and Brazil. They’re growing fast but can be a bumpy ride. High reward, higher risk.

International Small Caps (ETF: VSS)

These are smaller companies based outside the US. They’re not the big global brand names you’d recognize. They can grow quickly but also carry more volatility than their larger counterparts.

International Value (ETF: IVLU)

These are companies outside the US that look cheap compared to what they’re actually worth. Value investors look for stocks that are underpriced relative to their earnings, assets, or revenue.

For context on how these compare to domestic options, check out our article on US equity style returns.

30 Years of Returns: US vs. the World

Here’s the headline: from 1995 to today, every single US stock category outperformed every international one. That’s not spin. That’s just the data.

US Returns (CAGR, 1995 to Present)

CAGR stands for Compound Annual Growth Rate. It’s the average yearly return if you had stayed invested the entire time.

International Returns (CAGR, 1995 to Present)

The gap is hard to ignore. Even the worst US performer (Large Cap Value at 9.88%) beat the best international performer (European at 7.64%). That’s nearly a 2.3% annual difference, and over 30 years, that compounds into a massive wealth gap.

Equities vs. The US Market

Here’s how every equity category stacked up against the broad US market (10.90% CAGR).

Large Cap Growth (1.17%), Micro Caps (0.44%), Mid Caps (0.37%), Large Caps (0.12%), and Mid Cap Value (0.09%) all outperformed the US market during this time. Every other US equity style and all international equities underperformed the US market.

Beating Inflation, M2, and Gold: The Real Tests

Most financial comparisons stop after seeing if your investment outperformed the broad US market. Here are some better questions to ask to see how your investments really did:

• Did it beat official inflation (CPI)? If not, your purchasing power actually shrank.
• Did it beat M2 money supply growth? M2 tracks how fast new money is being created. If your investment doesn’t outpace the money printer, you’re not really getting ahead.
• Did it beat gold? Gold is often held up as the ultimate store of value and a hedge against dollar debasement.

Want to understand why M2 matters? Our article on M2 money supply and what it means for your wallet is a good place to start.

Every Equity vs. CPI, M2, and Gold

A few things worth mentioning:

• Every US equity beat gold. That’s a strong data point since gold is often framed as the ultimate hedge against a weakening dollar.
• Emerging Markets basically broke even with M2 at -0.04%. Over 30 years, investors in emerging markets barely kept pace with money supply growth.
• International Developed and Pacific both lost to M2 and gold. That means investors didn’t just trail the US. They lost real purchasing power over three decades.
• Everything beat CPI, but that’s a low bar. Official inflation ran at just 2.53%. Beating it doesn’t mean you’re actually getting ahead if the money supply is growing at 6.25%.

So Why Would Anyone Invest Internationally?

Fair question. If the US has dominated for 30 years straight, what’s the point of going global?

Here are a few reasons to think about:

No One Knows What Comes Next

The last 30 years were great for the US. But the 30 years before that? International markets actually kept pace or outperformed in some periods. There’s nothing that says the US will outperform forever.

In fact, from 2000 to 2010 (often called the lost decade for US stocks), international and emerging markets significantly outperformed. The US went through two major crashes during that time while developing economies were booming.

You’re Not Betting Everything on One Country

When you invest only in the US, you’re making a concentrated bet that the United States will continue to be stable, be the reserve currency, and remain the world’s largest economy. The question is are you comfortable betting solely on the United States for the foreseeable future?

International diversification means if the US stumbles, your whole portfolio doesn’t fall off a cliff (it also depends on the correlation between countries, but that’s another topic).

Valuations Matter

Right now, US stocks are trading at historically high valuations compared to international ones. Some financial experts argue that international stocks are better buys today simply because they’re cheaper relative to earnings.

That doesn’t mean they’ll outperform. But it’s worth thinking about and doing your own research on.

Currency and Economic Cycles

International stocks can benefit when the US dollar weakens. If you’re holding international assets and the dollar drops, those assets are worth more when converted back. Currency dynamics add another layer of potential return (and risk) to international investing.

Final Thoughts

The data is clear on one thing: if you had put all your money in US stocks in 1995 and left it there, you’d have done better than any international alternative.

But the truth is nobody knows what the future will hold.

The case for international investing isn’t “it beat the US.” The case is “I don’t want to bet everything on one outcome.” That’s a reasonable position.

At the end of the day, the question you need to ask yourself is: am I comfortable putting all my long-term wealth in one country? If yes, stick with the US and enjoy the simplicity. If you’d rather hedge your bets, a slice of international exposure might be worth considering.

Just make sure whatever you pick, you’re beating M2. That’s the real benchmark.

Frequently Asked Questions (FAQ)

Did international stocks ever outperform the US?

Yes. During the 2000 to 2010 period, international and emerging market stocks significantly outperformed US stocks. The US went through two major crashes during that time. It’s a reminder that 30-year windows tell one story, but specific decades can look very different.

What’s the difference between Emerging Markets and Developed International?

Developed International refers to wealthy, stable economies outside the US, like Germany, Japan, and the UK. Emerging Markets are countries still building their economies, like India, Brazil, and Vietnam. Emerging Markets carry more risk but also more growth potential.

Should I invest in international stocks if I’m just starting out?

That depends on your goals, timeline, and risk tolerance. A simple starting point is a low-cost total world index fund that automatically gives you both US and international exposure. That way you’re not making a big bet either way.

What does CAGR mean and why does it matter?

CAGR stands for Compound Annual Growth Rate. It tells you the average yearly return of an investment over time, assuming your gains are reinvested each year. It’s the most honest way to compare long-term investment performance because it smooths out the ups and downs.

Why does M2 matter more than CPI for measuring real returns?

CPI measures the price of a basket of consumer goods. It came in at 2.53% over our 30-year window. But M2 tracks how fast the money supply itself is growing, which ran at 6.25%. The gap between the two raises a fair question: if prices only rose at 2.53% but the money supply grew more than twice as fast, where did all that extra money go? A lot of it flowed into asset prices, which is part of why stocks did so well. Beating CPI is a low bar. Beating M2 is the real test.

What ETFs can I use to invest internationally?

Some common ones include VWO for Emerging Markets, VSS for International Small Caps, IVLU for International Value, VEA for Developed International, VGK for European markets, and VPL for Pacific markets. For broad international exposure, VXUS (Total International) is a popular low-cost option that covers all of them in one fund.

Why doesn’t the US outperform internationally in every single year?

Markets are unpredictable year to year. Even though the US dominated over 30 years, there are individual years where international markets performed better. Economic cycles, currency movements, global events, and valuation shifts all create variation. The 30-year average tells you about the trend, not each individual year.