With the S&P 500 experiencing a remarkable ascent in recent years, reaching unprecedented highs in 2025, there's a growing sentiment that its momentum might be waning. While it has still achieved a respectable 13% gain this year, this figure lags behind the more than 20% growth seen in prior periods. This slowdown, coupled with the increasing valuation of leading stocks within the index, suggests that the potential for significant future gains from U.S.-centric investments could be diminishing. Consequently, a shift towards a broader investment strategy, encompassing a wider geographical spread, might offer a more prudent path forward for investors.
Amidst this evolving market landscape, the Vanguard FTSE Developed Markets ETF (VEA) stands out as a promising alternative, having already demonstrated a robust 25% gain this year, surpassing the S&P 500. This ETF's appeal stems from its strategic diversification into international markets, with a significant portion of its assets allocated to European (53%) and Pacific region (35%) companies, and a smaller presence in North America (under 11%). Such a global footprint is particularly advantageous in an environment where trade policies and tariffs could impact U.S. businesses, potentially opening new avenues for growth in developed economies seeking alternative trade partnerships. Furthermore, the fund boasts an impressive portfolio of nearly 3,900 companies, including blue-chip giants like SAP, AstraZeneca, and Roche, all trading at a modest average price-to-earnings multiple of just under 17, which is considerably lower than the S&P 500's average of 26. This combination of broad diversification and reasonable valuations suggests that the Vanguard fund offers a greater margin of safety and a higher upside potential compared to the currently highly-valued U.S. market.
Looking ahead, the Vanguard FTSE Developed Markets ETF is well-positioned not only for near-term outperformance but also as a cornerstone for long-term investment strategies. Its ability to provide comprehensive market diversification reduces reliance on the U.S. stock market, a critical factor for mitigating risk during economic uncertainties. Beyond its strategic asset allocation, the fund is characterized by an exceptionally low expense ratio of 0.03% and an attractive dividend yield of 2.8%. These features, combined with its strong performance and inherent diversification benefits, make it an excellent choice for investors aiming for sustained growth and portfolio resilience over the long haul, proving that thoughtful global diversification can be a powerful engine for enduring financial success.
