Want to see something very scary?

Index Fund

Annualized Returns

Vanguard 500 Index (VFINX)


Vanguard Total Bond Market Index (VBMFX)


Source: Morningstar, through May 28.

Holy crud!
It would have been hard to believe back in April 1998 that a stock index tracking America's largest companies -- Schlumberger (NYSE:SLB), Boston Scientific (NYSE:BSX), Anheuser-Busch (NYSE:BUD), et al -- would get beaten by a lowly bond index by almost two full percentage points over the next 10 years.

But it would also have been tough to imagine back then that American icons such as Motorola (NYSE:MOT), Schering-Plough (NYSE:SGP), and The New York Times (NYSE:NYT) would be trading lower 10 years later, as they were at the end of last April.

Bad news for mutual fund marketing
Unfortunately, the S&P's days of posting regrettable 10-year returns may be just beginning. For instance, if the S&P 500 fails to reach its March 2000 high close of 1,527 by March 2010 (a 10% gain from here), the index will have posted negative 10-year returns.

Moreover, to achieve its historical 6% annual return from March 2000, the S&P will need to roughly double (reaching 2,734) over the next two years. That is, in a word, unlikely.

A tall order
As scary as the current and potential 10-year returns for the S&P sound, investors who added international stocks to their portfolio in 1998 have still come out ahead.

Index Fund

10-Year Annualized Returns

Vanguard Total International Stock Index (VGTSX)


Vanguard Emerging Markets Index (VEIEX)


Source: Morningstar, through May 28.

While past returns can't predict future results, the benefits of diversifying your portfolio with international stocks become obvious when you look at these statistics.

Hypothetical Portfolio

Weighted 10-Year
Annualized Returns

100% S&P 500 Index


70% S&P 500 / 30% Total International


70% S&P 500 / 20% Total International / 10% Emerging Markets


As you can see, just adding a little international flavor to the portfolio would have improved your 10-year returns quite nicely.

Be prepared
If the past 10 years' returns for the S&P 500 don't scare you into giving international stocks a second look, I'm not sure what will.

This isn't to say that the U.S. markets won't post solid returns over the next 10 years. It's just that the tremendous growth opportunities available overseas could not only boost your long-term returns, but also reduce your portfolio's overall risk.

If you need some guidance navigating the sometimes-murky international waters, Fool senior advisor Bill Mann and his Motley Fool Global Gains team can help. Next week, Bill and team are visiting China, Vietnam, Indonesia, and Singapore on a research trip. You can get all their thoughts and findings from the field by signing up for their real-time dispatches. Simply enter your email address in the box below.