Many people think of the S&P 500 when it comes to investing in the stock market. That's a perfectly acceptable choice, but it also leaves out a lot of other options.
Two primary areas of the market get ignored when investing in the S&P 500.
The first is U.S. small caps. These have been steady underperformers for years, which is why they often get ignored in investor portfolios. But as we've seen in 2026, they can do particularly well in some environments. Megacap tech won't lead the market higher forever. Small caps often step in during periods of economic recovery and when value is in favor.
The second is international stocks. Using market capitalization as a benchmark, about 65% of global equities come from the United States. That leaves a large share of the global economy unrepresented in many portfolios. Like small caps, the past year has demonstrated how international stocks can be additive to total returns.
Over a period of decades, it makes sense to own all of these asset classes. Diversification across multiple regions and market caps help smooth out long-term returns, mitigate some downside risk, and avoid trying to pick individual winners.
That's why owning the Vanguard Total World Stock ETF (VT 1.74%) makes so much sense.
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Investing beyond the S&P 500
This ETF tracks the FTSE Global All Cap Index, which covers virtually the entire investable world stock market. It includes roughly 10,000 different stocks across all major categories, including the United States, developed markets, emerging markets, large caps, and small caps. It might be the ultimate ETF in terms of worldwide equity diversification.
Currently, it's approximately 65% U.S. stocks, 25% developed markets, and 10% emerging markets. That's a pretty solid long-term allocation since you still get an oversized allocation to the United States but also the unique influences of foreign economies as well as the potential of emerging markets.
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Key Data Points
While there's certainly a home bias among U.S. investors that helps them lean toward the S&P 500, 2026 provides a good case study in why international diversification is so important. While the U.S. may be where the majority of technological innovation is coming from at the moment, the more industrial, cyclically sensitive composition of many non-U.S. economies means that they can perform differently in various economic environments.
International stocks also often trade at lower price-to-earnings (P/E) ratios, which can be attractive when the global environment looks more uncertain. That factor is coming into play now and is a contributing reason why international stocks are doing well.
The Vanguard Total World Stock ETF offers an all-in-one equity package. For long-term investors looking for a true set-it-and-forget-it option for their portfolios, owning the entire world and letting it grow over time could prove to be the best option of all.
