For years, the question wasn't whether to invest internationally—it was why bother. U.S. stocks, led by the magnificent technology giants, dominated global returns while Europe stagnated and Japan remained a perennial turnaround story that never quite arrived.

That narrative may finally be changing.

The Case for Going Global

International stocks staged a powerful comeback in 2025, outpacing U.S. markets by a wide margin. Yet even after that outperformance, non-U.S. stocks generally trade at significant discounts to their American counterparts.

According to Charles Schwab's 2026 outlook, developed international equities offer several long-term advantages:

  • Lower valuations relative to the U.S.
  • Higher dividend yields
  • Potential currency tailwinds if the dollar weakens
  • Less reliance on a narrow set of megacap technology stocks

Fidelity's international outlook echoes these themes, noting that "international stocks could be poised for another strong year in 2026 due to accelerating global growth, attractive valuations, and the potential for dollar weakness."

Europe's Brightening Prospects

Europe looks particularly promising for 2026. Thanks to interest rate cuts by the European Central Bank and countries like Germany making significant fiscal spending commitments, the region appears poised for stronger economic growth.

German industrial stocks have surged on expectations of infrastructure investment. French luxury goods makers continue to benefit from Chinese consumer demand. And UK equities, among the cheapest in developed markets, offer value hunters a compelling opportunity.

"Europe's combination of easing monetary policy, fiscal stimulus, and attractive valuations creates an unusually favorable backdrop for 2026."

— Schwab International Stock Outlook

Japan's Corporate Revolution

Japan may be the most compelling opportunity of all. "Sanaenomics"—the economic policies of new Prime Minister Sanae Takaichi—and ongoing corporate governance reforms are transforming Japanese business culture.

Companies are finally prioritizing shareholder returns, unlocking excess cash for capital investment, wage growth, and dividends. The Tokyo Stock Exchange's push for better capital efficiency has forced even the most conservative managements to rethink strategy.

Businesses will likely focus on unlocking excess cash in 2026, which could fuel investment, higher wages, and increased shareholder returns. For foreign investors, a cheaper yen adds additional appeal.

What the Strategists Say

Major investment banks are aligned in their bullish global outlook:

  • J.P. Morgan: Positive on global equities, forecasting double-digit gains across both developed and emerging markets
  • Goldman Sachs: Expects sturdy global growth of 2.8% in 2026, above the consensus 2.5%
  • Vanguard: Identifies non-U.S. developed market equities as offering among the strongest risk-return profiles over the coming decade

Vanguard's capital markets projections are particularly noteworthy. The firm's research suggests that the strongest risk-return profiles over the next five to ten years belong to high-quality U.S. fixed income, U.S. value-oriented equities, and non-U.S. developed markets.

The Risks

International investing isn't without challenges:

  • Trade Policy: Rising protectionism and potential tariff escalation could hurt export-dependent economies
  • Geopolitical Risk: The war in Ukraine, China-Taiwan tensions, and energy security concerns remain wild cards
  • Currency Volatility: Dollar strength could erode returns for U.S.-based investors
  • Slower Growth Potential: European demographics remain challenging; Japan's population decline continues

How to Invest

Investors seeking international exposure have several options:

  • Broad international ETFs: Funds like VEA (Vanguard FTSE Developed Markets) and IEFA (iShares Core MSCI EAFE) offer diversified exposure
  • Country-specific funds: EWJ (Japan), EWG (Germany), and EWU (UK) allow targeted bets
  • Global dividend funds: IDV and VYMI focus on high-yielding international stocks
  • ADRs: Individual companies like Toyota, Nestlé, and LVMH trade on U.S. exchanges

The Bottom Line

After a decade of U.S. exceptionalism, the rest of the world is demanding attention. Lower valuations, improving fundamentals, and potential dollar weakness create a compelling case for international diversification.

The best portfolios have always been global. In 2026, that wisdom may finally be rewarded.