In 2025, U.S. stocks soared with the S&P 500 up 16.4%. International stocks did even better, with the MSCI World ex USA index climbing 32.6%, fueled by a weak dollar and shift away from the U.S. due to trade policies.

Historically, international stocks have been a good diversification tool for American investors. With economist Robert Shiller predicting muted returns for the S&P 500 over the next decade, investors are looking at international stocks to potentially outperform in 2026.

Despite international stock outperformance, the S&P 500 had impressive returns, averaging 26.3% in the last two years. However, Shiller sees high valuations in U.S. stocks as a major obstacle for future gains, with potential average returns over the next decade forecasted at just 1.5%.

European and Japanese stocks, trading close to their historic average CAPE ratios, could offer better returns over the next decade. Shiller predicts annual returns of 8.2% for European stocks and 6.5% for Japanese stocks. Consider diversifying with international index funds like Vanguard Total International Stock ETF or iShares Core MSCI Europe ETF.

The Motley Fool Stock Advisor team identified the 10 best stocks to buy now, excluding the S&P 500. With a total average return of 942%, significantly outperforming the S&P 500, their picks have the potential for significant gains in the coming years.

Read more at Yahoo Finance: Can International Stocks Outperform Once Again in 2026? Here’s What Nobel Prize Economist Robert Shiller Has to Say.