Why Diversify? The Best Case I’ve Ever Heard

Special post by Michael Evans, Founder of Cogent Strategic Wealth

Cogent Wealth, the firm I founded, just celebrated 15 years of serving clients. Yet, I’ve been investing my family’s wealth in a systematic, evidence-driven philosophy for 25 years. 

One of the best lessons I’ve learned—and lived—is the power of diversification. It’s easy to get caught up in the idea that investing in U.S. stocks alone is enough. After all, the U.S. has been a dominant market for decades. But when it comes to long-term investing, what matters most isn’t just raw returns—it’s our ability to stay invested.

The Dilemma: Why Diversify If U.S. Stocks Have Done Just Fine?

A few years ago, I heard a very compelling argument for diversification from Joel Hefner, a VP at Dimensional Fund Advisors. Just to be clear, I’ve owned Dimensional Funds for 25 years and recommend Dimensional’s funds and ETFs in our client’s portfolios. I’ve enjoyed the experience of both investing with them and learning so much along the way. 

Joel’s argument is one of those insights that immediately clicked and reinforced everything I’ve learned over my career.

Joel pointed out a fascinating dilemma: When you look at the long-term returns of a smartly constructed, globally diversified index portfolio, you might expect it to significantly outperform a simple U.S. stock index. But from 1985 to 2024, the all-equity Dimensional Core Plus Allocation Index returned +11.6% per year, exactly the same as the Russell 3000 U.S. Total Market Index. Even the volatility was the same.

If global diversification didn’t necessarily increase returns, why do evidence-driven advisors like me keep emphasizing it? Why do we encourage spreading your investments across the world and tilting toward smaller, more value-oriented, and higher-profitability companies? How do you ignore the recent performance of US growth stocks outperforming international stocks?

Because investing isn’t just about chasing the highest possible return. You read that right. 

It’s about sticking with your well-crafted investment portfolio through every kind of scenario: financial crisis that takes US markets down 50% or more, passenger jets loaded with people and fuel being flown into buildings in New York City and Washington DC, the Federal Reserve suddenly tightening one full percent to thwart unexpected inflation, the implosion of Dot.com company’s stock values. Just you name it. That’s where diversification shines.

The Hardest Part of Investing: Sticking With It

Joel’s brilliant observation was this: 40 years is a long time—are you sure you would have held onto a U.S.-only portfolio through every market environment?

Even though U.S. stocks performed well over the long run, there were plenty of painful stretches along the way.

Imagine investing in U.S. stocks only to find yourself in one of these situations:

• Four different five-year periods where your returns were negative
• One seven-year period where you lost money
• One eight-year period in the red
• Two full ten-year periods where you made nothing

That means that 20% of the time over the last 40 years, U.S. stocks left investors with nothing to show for a 5-to-10-year stretch.

Think about that. A decade of nothing. 

Now, be honest: How many people can sit through a decade of no returns and stay invested? 

I’ve been in the middle of financial markets for almost as long as Joel’s 40-year example. That is long enough to know the answer—not many. 

When faced with years of poor returns, investors bail. They sell low, locking in their losses, and often don’t get back in until after the market has already recovered.

We are human and have our breaking point. All of us. 

The Power of Global Diversification

So, what happened when we looked at the diversified US, International, and Emerging Market Index through the same lens?

How many times did it have negative returns over five, seven, eight, or ten years?

Zero.

That’s the point. A globally diversified portfolio isn’t just about maximizing returns—it’s about making the ride smoother, reducing long droughts where investors might lose faith and abandon their plan.

And that’s why I love Joel’s point: The best investment portfolio for you is the one you’ll stick with. 

Period. 

Why I’ve Invested This Way for 25 Years

I didn’t just adopt this philosophy because it sounds good—I’ve lived it. As I mentioned at the beginning of this piece, my wife and I started investing in Dimensional funds more than 25 years ago, long before I founded Cogent Strategic Wealth. What drew me to them was the systematic, evidence-driven approach to investing, rooted in decades and decades of peer reviewed, academic research.

But what’s kept me invested all these years is the consistency. I’ve been through multiple bear markets, financial crises, and tech and real estate bubbles. There were times when U.S. stocks soared and times when they struggled. But through it all, our globally diversified portfolio has allowed us to sleep at night—because I know I’m not reliant on a single country, a single sector, or a single economic cycle.

We had a plan. That plan went from Our Goals to Our Plan to Our Portfolio.

I’ve seen clients thrive using this approach too. Some of them have weathered market crashes with patience, knowing their portfolio was designed for the long haul. Others, who were once skeptical about diversifying beyond the U.S., have come to appreciate the steadier returns and smoother experience.

The Bottom Line

At the end of the day, investing is more about our behavior than the numbers. The right portfolio isn’t necessarily the one with the highest expected return—it’s the one you can stick with through thick and thin. And if spreading your investments across the globe helps you stay disciplined, that’s worth more than any short-term outperformance of a single market.

That’s why I diversify. That’s why I invest this way myself. And that’s why we build globally diversified, evidence-driven portfolios for our clients and ourselves at Cogent Strategic Wealth.

Because if you want to reach your long-term goals, you need a plan and adopt a strategy you can trust and stick with.

Ready to Build A Plan for Yourself and a Portfolio You Can Stick With?

If you’ve struggled with staying the course in your investment journey—whether it’s reacting to market swings, second-guessing your strategy, or feeling unsure about your long-term plan—you’re not alone. The key to financial success isn’t just picking the right investments; it’s having a portfolio you can confidently stick with through all market conditions. That’s exactly what we help our clients do at Cogent Strategic Wealth. If you’re ready for a systematic, evidence-driven investment approach that prioritizes consistency,and resilience, and allows you long-term success as you define it, let’s talk. Schedule a cogent conversation with us today—and take the first step toward a portfolio you can trust for the long run.