2025: A Powerful Reminder That Diversification Still Matters

If 2025 proved anything, it’s that markets don’t move in straight lines, and they rarely behave the way pundits expect.

This past year whipsawed investors around the world. U.S. equities fell sharply before staging a strong rally. The U.S. dollar declined unexpectedly. Debt levels climbed. Global trade relationships were strained. And yet, despite the uncertainty, global equity markets delivered strong, broad-based gains.

A Year of Global Participation

In the U.S., the S&P 500 Index rose 17.88%, while the Nasdaq Composite gained approximately 21.14%.

But the real story of 2025 wasn’t just U.S. performance, it was global leadership rotation.

International developed and emerging markets posted even stronger results. the MSCI All Country World Index excluding the U.S. gained more than 30%,  with many other MSCI EAFE variants delivering returns above 30%.

Meanwhile, speculative digital assets told a very different story. Bitcoin declined roughly 6% in 2025.

The Matson Money International Fund (FMNEX) returned 42.82% in 2025.

Year-to-date 2026 results have also reflected relative strength, with international stocks continuing to do well.

The lesson? Leadership rotates. And it often rotates when few expect it.

The Case for Global Diversification

For more than a decade, U.S. equities have outperformed most international markets. It’s easy to begin believing that trend will continue indefinitely.

History tells a different story.

Looking at rolling 10 year periods from 1970 through 2025, the MSCI EAFE Index outpaced the S&P 500 Index 40% of the time. That means nearly half of all 10-year stretches favored international developed markets over the U.S.

No one knows when the next leadership shift will occur, but history suggests that each asset class has its day.

Investors who concentrate solely on one region risk missing those periods entirely. Diversification across U.S. and international markets, as well as across small-cap and value equities, helps:

• Reduce reliance on a single economy or regime

• Smooth portfolio volatility

• Increase the probability of participating in future leadership shifts

As 2025 demonstrated, broad global participation can meaningfully enhance risk-adjusted returns.

The Futility of Forecasting

As we move into 2026, optimism is once again abundant. According to data compiled by Bloomberg: “Every Wall Street Analyst Now Predicts a Stock Rally in 2026.”

Only time will tell.

Historically, the gap between year-end forecasts for the S&P 500 and actual returns has been substantial. Many annual forecasts missed by more than 20%.

Why? Because market prices already reflect current expectations. Future returns are driven by new, unexpected information, events that simply cannot be known today.

Trying to predict short-term market movements is extraordinarily difficult. Building a disciplined, globally diversified portfolio designed to capture market returns is far more reliable.

Returns across many international and value-oriented segments significantly outpaced broad U.S. benchmarks, a powerful reminder that leadership is cyclical.

(Note: Management fees and transaction costs have not been deducted. Individual investor results may differ. Past performance does not guarantee future results. Indexes are unmanaged and not available for direct investment.)

The Discipline That Drives Long-Term Success

Long-term investing requires discipline, especially when headlines are loud and predictions are confident.

A globally diversified portfolio means you will always own some of the best-performing assets, and some that lag. That’s not a flaw. It’s the design.

Diversification ensures you avoid relying on forecasts and reduces the risk of being concentrated in the wrong place at the wrong time.

As we step into what will likely be another eventful year, the path forward remains the same:

• Stay disciplined

• Stay diversified

• Stay focused on long-term goals

No one can predict the future. But investors who remain committed to a long-term, globally diversified strategy position themselves to capture market returns without relying on guesswork.

If you would like to review your portfolio, revisit your long-term plan, or simply talk through what 2026 may bring, I’m always available for a conversation.

Here’s to another year of disciplined investing and purposeful planning.