Many people think about it S&P 500 When it comes to investing in the stock market. This is a perfectly acceptable option, but it also leaves many other options.
Two primary areas of the market are overlooked when investing in the S&P 500.
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First up are US small caps. They have been consistent underperformers for years, which is why they are often overlooked in an investor’s portfolio. But as we saw in 2026, they can work particularly well in certain environments. Megacap tech won’t drive the market higher forever. Small caps often step up during periods of economic recovery and when valuations are in favor.
The second is global storage. Using market capitalization as a benchmark, about 65% of the world’s capital comes from the United States. This leaves a large part of the global economy unrepresented in most portfolios. As with small caps, the past year has shown how global stocks can add up to total returns.
Over a period of decades, it makes sense to own all these asset classes. Diversification across multiple sectors and market caps helps facilitate long-term returns, reduces some downside risk, and avoids trying to pick individual winners.
Therefore, ownership Vanguard Total World Stock ETF (NYSEMKT: VT ) Makes a lot of sense.
It tracks ETFs FTSE International All Cap Indexwhich covers the virtually investable world stock market. It includes about 10,000 different stocks across all major categories, including US, developed markets, emerging markets, large caps and small caps. This may be the ultimate ETF in terms of global equity diversification.
Currently, it is approximately 65% US stocks, 25% developed markets, and 10% emerging markets. This is a very strong long-term allocation because you still get a broad allocation to the US but also the unique effects of foreign economies as well as emerging markets potential.
While there is certainly a home bias among U.S. investors that helps them lean toward the S&P 500, 2026 offers a good case study of why global diversification is so important. While the United States may be where most technological innovation is currently coming from, the more industrialized, cyclically sensitive structure of many non-US economies means that they may perform differently in different economic environments.
