American Consequences - June 2021

would suggest. I

By Kim Iskyan


t’s a common investing pitfall... Folks often focus their investments on the country where they live. In fact, the average American investor holds a little more than three-quarters of his portfolio in stocks listed on U.S. exchanges. American stocks, though, account for only about half of total global stock market capitalization (that is, the value of all the world’s stock markets put together). That means that most Americans are “overweight” U.S. stocks – they own more American stocks than an allocation based on market capitalization

This tendency for investors to favor stocks in their domestic market is called “home- country bias.” For Americans, this seems like a logical choice... The U.S. is a big and powerful country, and the world’s largest economy, so it should indeed make up a good portion of anyone’s portfolio. But perhaps surprisingly, whether they live in the U.S., Germany, or Singapore, investors all over the world are “overweight” their home country. These days, investors in Japan put about 55% of their money in Japan-listed stocks – although Japan accounts for only about 8% of the world’s total stock market capitalization. And Australians put 66% of their money into their domestic stock market – which is just 2% of the world’s market capitalization. Those data don’t even include real estate... For many people, buying a home is their single largest investment, and it’s nearly always a “home country” purchase. The same is true of most folks who buy real estate for investment purposes. So including real estate, the actual concentration of investors’ assets in their local markets is actually much higher.

If your home country struggles to grow – or, worse yet, undergoes a serious crash – you just may be stuck in a bad situation. Whether you’re a tycoon making big financial moves, or a wage-earner trying to buy a home to live in, what happens to your country, happens to you. Now I’m not calling for a massive market crash here in the United States, but certainly many of the ingredients have already been mixed together... high government debt, low interest rates with no inflation, an aging population, and a speculative bubble. But here’s the key... The modern financial system has given you a way to protect yourself. Many folks think of the stock market and other investments as a way to get rich without working. And sure, that’s part of it. But perhaps more important is the ability to spread your assets around all parts of the economy, and the world, to earn safer returns and protect your wealth from changes to one single sector, economy, or currency. A century ago, a miner’s entire fortune rose and fell with the mining industry. Today,

American Consequences


Made with FlippingBook - professional solution for displaying marketing and sales documents online