Why Own International Stocks When Silicon Valley Is Home to the World's Largest Companies?

It is a fair question from someone who works down the road from the most valuable companies on earth. The answer has more to do with risk than with return.

Living in the Bay Area can make the rest of the world's stock markets feel optional. The companies that dominate global indexes are headquartered within a short drive, and U.S. stocks have represented the majority of global market value for years. Yet most investment frameworks still call for some allocation outside the United States. Understanding why, and what the trade-offs are, helps a household decide how much international exposure fits its plan.

How large the U.S. already is

As of August 2026, the MSCI ACWI index, a common benchmark for global stocks, had roughly 2,458 constituents across 47 countries, with the United States making up about 63.6% of the index, followed by Japan at 5.1%, Taiwan at 3.3%, the United Kingdom at 3.1%, and Canada at 3.1%. Information technology alone was more than 31% of the index. A portfolio weighted to the global market is therefore already mostly American and heavily technological. The question is not whether to own U.S. stocks, but whether to hold the remaining third or so of the world's market value at all.

The case for looking abroad

The SEC's investor education page offers two basic reasons: international investing may help spread risk among foreign companies and markets in addition to U.S. ones, and it provides exposure to growth in economies outside the United States, including emerging markets. The diversification argument is the more durable of the two. Different countries experience different economic cycles, currency movements, interest rate regimes, and political events. Periods of U.S. leadership and periods of international leadership have alternated historically, and the timing of those shifts has not been predictable.

Vanguard's research on global equity investing found that U.S. investors have historically held about 1.4 times as much domestic stock as global market weights would imply, a pattern known as home bias, and that in its analysis portfolio volatility was reduced most when international equities represented between 35% and 55% of the equity allocation. The same paper suggested global market-capitalization weight as a starting point while acknowledging that many investors settle well below it for reasons of cost, taxes, and comfort.

For a Silicon Valley household, there is an additional reason. Salary, unvested equity, and local home values already depend on the U.S. technology sector. An international allocation is one of the few parts of a portfolio that does not.

The costs and risks

International investing brings risks that domestic investing does not. The SEC lists currency fluctuations that can raise or lower returns for a dollar-based investor, political and economic conditions that are harder to follow from abroad, lower trading volumes in some markets, less available company information, and limited legal recourse in U.S. courts. Expense ratios on international funds can be higher than on domestic index funds, and foreign withholding taxes on dividends can reduce yield, though a foreign tax credit may recover part of that in a taxable account.

There is also the matter of expectations. In periods when U.S. stocks lead, an investor holding international exposure will lag an all-U.S. portfolio, and such periods can last many years. Vanguard's research notes that correlations between markets have risen over time, reducing but not eliminating the diversification benefit. Owning international stocks is a decision to accept periods of relative disappointment in exchange for a portfolio that does not rest on a single country's outcomes.

Practical considerations

• Decide on a target range, such as a percentage of the equity allocation, rather than reacting to which region has done well recently.

• Consider where international funds are held; the foreign tax credit is generally available only in taxable accounts, while tax-deferred accounts forgo it.

• Look at total exposure, since many U.S. companies earn a large share of revenue abroad and many international companies sell heavily into the United States, so the diversification is real but partial.

• Rebalance periodically, because whichever region has outperformed will drift above its target weight.

No allocation eliminates the possibility of loss, and international stocks can decline at the same time as U.S. stocks, sometimes more sharply. This article is educational only and does not constitute investment, tax, or legal advice; consider consulting a qualified professional about your own situation.

Important Disclosures

Important Disclosures: Propulsion Capital Management is an investment adviser registered with the State of California Department of Financial Protection and Innovation. Registration does not imply a certain level of skill or training. This article is provided for general informational and educational purposes only and does not constitute investment, tax, legal, or accounting advice, nor an offer or solicitation to buy or sell any security or to adopt any particular investment strategy. The information is believed to be accurate as of the date of publication but is subject to change without notice; tax laws and regulations change frequently and their application depends on individual facts and circumstances. Nothing herein should be relied upon as a substitute for personalized advice from a qualified professional. Investing involves risk, including the possible loss of principal, and past performance is no guarantee of future results. Diversification does not ensure a profit or protect against loss. Any examples are hypothetical, are for illustrative purposes only, and do not reflect the experience of any client. Links to third-party websites are provided for convenience; Propulsion Capital Management does not endorse, and is not responsible for, the content of third-party sites. Propulsion Capital Management does not provide tax or legal advice; please consult your tax adviser or attorney regarding your specific situation.