My partner Barry Ritholtz joins a panel of professional investors for a Bloomberg panel on where to invest $10,000 now…
About six months ago, we discussed how underinvested most Americans are in emerging markets. Since then, we’ve seen a nice total return in the Vanguard FTSE Emerging Markets ETF (VWO) of 3.5 percent. (The past three months haven’t been as kind, as noted in the ETF performance figures below.)
But it is not only the emerging markets that Americans tend to be underexposed to, but the developed international markets as well.
Blame home country bias. People are more comfortable in the companies and corporate management they are most familiar with. That tends to be the companies of their home country. This leads to significant overexposure to Canada or the United Kingdom or the United States, or wherever.
The problem with this is that it’s a big world. The U.S. accounts for about half of the world’s stock market capitalization and about 25 percent of its economic activity. Investing primarily in U.S. stocks dramatically reduces the benefits of diversification.
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