Diversification is an investment strategy as old as time. Today, diversification in international allocations stands as a valuable means for reducing risk over the long term, helping mitigate localized risks like economic downturns or political instability and instead benefit from the growth of various economies.
Despite this, the U.S. has historically remained the go-to for investors, and for good reason. Data shows that over the last 15 years, the S&P 500 has had an annualized return of 14.2%. If you invested $10,000 at the start of this period, it would have grown to approximately $67,000 by the end, assuming the return held consistently. In comparison, the MSCI ACWI ex-USA index, which tracks global stock markets excluding the U.S., experienced a return of 6.5% over the same timeframe. That’s $26,000 on that hypothetical 10k investment, underperforming by more than half.
The first half of 2025, however, seems to signify a changing tide, with investors altering their stance in favor of international stocks over U.S. equities. In a turn of events, as of June, the MSCI ACWI ex-USA index has returned 15.7% in comparison to the S&P’s 1.5% return, illustrating a stark contrast in the investor mindset as concerns over factors like U.S. market volatility, policy uncertainty and a weaker dollar take hold and make international investments far more attractive.
This has left investors rethinking the geographic allocation of their portfolios, unsure of both the strength of their current investment positioning and the best strategies for protecting their portfolios moving forward amid ongoing volatility. Traditional advisory firms can easily address these concerns through direct advisor-client communication. But robo-advisors face a unique challenge, particularly when it comes to pure robo clients who are without access to a human touchpoint to provide such context into their portfolios and guidance about next moves. There is a growing need for automated platforms to provide clearer, more detailed communication about international vs. domestic allocation splits within client portfolios to ensure investors, despite their lack of an advisor, feel supported during complex downturns. This additionally provides robo firms with the opportunity to establish their offerings as expert-backed, demonstrating available guidance when it comes to handling market turbulence.
Let’s look at some of the ways in which firms from our Automated Investor Monitor coverage set are tackling the matter:
- On its secure site, Betterment’s Holdings page features an asset class breakdown that differentiates between international and U.S. holdings within expandable sections. Here, the firm stands out with Why This Asset Class and These ETFs explanations for each category, clearly communicating how each allocation aligns with the client’s investment objective and risk tolerance through discussion of benefits and potential drawbacks. In doing so, the firm helps investors understand the current positioning of their investments and the role each holding plays within their portfolios, allowing them to more easily understand the health of their investments and established guardrails against volatility. The firm commendably includes such messaging within lightboxes on its investor questionnaire as well, available through hyperlinked tickers on portfolio strategy pages. As such, the firm provides investors with a clear understanding of allocation splits prior to making a portfolio selection, ensuring they can pick one that aligns most closely with their comfort and needs.
- Like Betterment, Charles Schwab also offers a domestic/international breakdown, doing so from its secure site Investment Profile Summary page. However, more uniquely, the firm allows investors to choose between a globally diversified portfolio or one that is U.S.-focused during the third step of the Intelligent Portfolios investor questionnaire. Each option includes an explanation, with the firm specifically recommending its globally diversified portfolio option as it believes global diversification offers the best opportunities for growth over time. Investors can update their portfolio preferences later as well. When doing so, the firm explicitly cautions against higher volatility associated with its U.S.-Focused strategy due to its concentration in one geographical region, noting that global diversification will likely experience lower volatility. Through this explicit warning, the firm simultaneously demonstrates its knowledge of the markets as well as how it keeps its clients’ best interests in mind.
- Empower offers a secure site Investment Checkup tool with an Allocation tab that features an Allocation Comparison section. Here, the firm recommends whether investors should reconsider their holdings in international stocks or other asset classes. The firm provides a data visualization to help investors more easily understand such hypothetical changes to their allocation split as well as describes how the new split can benefit investors. In this case, the firm specifically notes that “investing globally can be an effective way to maximize potential return while minimizing risk,” highlighting the benefit of a higher international exposure to funnel investors accordingly.
Such firms serve as unique examples in the coverage set, with most others appearing to simply differentiate between domestic and international holdings without any further messaging to detail such exposures. With U.S. equities historically performing well, firms have lacked strong incentives to emphasize guidance on geographic allocation splits, which may explain why such support appears limited across the firms in our analysis. This shifting market dynamic, however, particularly presents an opportunity for automated investing firms to adapt their client support to address this concern, as well as other general anxieties, especially given their lack of human advisors for direct consultation.
This level of communication from automated investing firms will continue to be important as time goes on. Markets are inherently dynamic, always changing, fluctuating up and down. Today, it’s tariffs, recession fears and inflation. Tomorrow, who knows? Communication remains important in any market environment.
Learn more about CI’s Automated Investing Monitor research here. And return to our Insights page for more on the latest trends across investing and other financial services verticals.
Deirdre Kelshaw
Deirdre Kelshaw is an analyst on CI's asset management team.