Most investors’ portfolios are heavily tilted toward U.S. stocks. That’s natural — people tend to favor their home country’s market, and U.S. stocks have had an exceptional run over the past decade. But history reminds us that concentrating too much in one asset class can create real risks, especially for retirees who depend on their portfolios to cover their living expenses.

At Gibson Capital, we contend that broad diversification — across U.S. and non-U.S. stocks, real estate securities, and other asset classes — gives investors a better chance to achieve steadier, long-term results. Why?

• Reduced volatility: Diversification narrows the range of potential outcomes and smooths the ride of living from your portfolio in retirement.
• Potential for improved returns: A multiple-asset-class approach to portfolio construction might lead to improved long-term returns through a combination of reduced portfolio volatility and the potential to rebalance between the asset classes.
• Retirement protection: Most importantly, diversification reduces the risk of a long stretch of poor returns from a single asset class (e.g. U.S. stocks) derailing your retirement plan.

What the Data Shows

The table below shows returns by decade for three equity asset classes and a portfolio that is equally allocated across the three.  When you review the highest performing asset class of each decade (highlighted), one pattern from the table is clear: no single asset class consistently leads the pack.  U.S. stocks, international stocks, and real estate securities have all rotated from “best” to “worst” performers, and vice versa — sometimes dramatically.

But the equally allocated portfolio never came in first or last in any one decade. Instead, it delivered steadier, more reliable results, which is important for investors taking distributions from their portfolio.

A Retirement Case Study

Consider two retirees who each began with $4 million in 1999 and withdrew $200,000 a year (increasing with inflation). One invested only in U.S. stocks, the other used a diversified approach.

• After the first 10 years of retirement, the portfolio value of the investor whose portfolio was only invested in U.S. stocks had fallen to just $1.28 million.  This poor result was driven by the 10-year cumulative negative return from the U.S. stock market from 2000 through 2009 as shown in the previous table.
• The diversified investor, by contrast, still had about $3.42 million at the end of 2009, as they were able to mitigate the poor return of the U.S. stock market by investing in other asset classes.
• Even though U.S. stocks later rebounded strongly in the 2010s, the U.S. stock-only investor ran out of money in 2016. The diversified investor’s portfolio, meanwhile, ended 2025 above $4.5 million — higher than where they started.

The Takeaway

No one knows which asset class will lead in the next decade. But history shows that the winners of one period often lag in the next. For investors — and especially retirees — spreading risk across multiple asset classes can help preserve wealth and sustain withdrawals through good markets and bad.  These two concepts make now a great time for investors to revisit their asset allocation, especially since the U.S. stock market has experienced exceptional returns over the last 10+ years.