Home Bias Investing

Whenever I review a prospective client’s investment portfolio, I rarely see one that is truly globally diversified. The biggest problem I see is that most people are woefully over-weighted in US stocks. To make matters even worse, its usually exposure to just large US company stocks.

Their advisors might have placed them into General Motors, GE, Verizon, Proctor & Gamble, Johnson & Johnson, and similar large stocks.

The problem here is that the investor thinks he or she is properly diversified, but in reality, they have several sectors representing only two asset classes. So when one of the stocks rises, generally they all rise. But when one drops in price, more often then not they all drop. The result: unintentional wild swings in account values.

What’s missing may be International Stocks. What is surprising to many investors and many advisors is that stocks representing the international asset classes can actually reduce the overall risk inside a portfolio.

How can this be? Well, according to Forbes Magazine, 74 of the largest 100 public companies are now based outside of the United States. As a whole the US represents only about 40% of the world’s market capitalization. Investing overseas, if done properly, may be much less riskier than in years past.

We are truly a global economy. So reduce your risk by properly diversifying into the international asset classes – and don’t be a “Home-er.” Consult an advisor who understands proper global diversification.

Here’s a video featuring Professor Kenneth French from Dartmouth College talking about the risks of home bias in investing.


About Paul Nichols

Paul is the founder of Financial Abundance, a Registered Investor Advisory firm and EDI, an Estate Planning Firm with offices in State College and Lewisburg. He has been working with individuals, families and businesses for over twenty years, including many Fortune 500 companies. He has educated tens of thousands of people through seminars, workshops and various international speaking engagements where he shared the stage with many notable individuals such as Ronald Reagan, Robert Kiyosaki (author of Rich Dad, Poor Dad), Mike Ditka, General Schwarzkopf, and Newt Gingrich to name a few.

In 2000, after many years of traveling to consult companies and individuals, Paul decided to relocate from Colorado to State College, PA (his wife’s hometown) to develop a local advisory firm.

Paul operates under the core belief that education plus understanding leads to clarity and confidence; resulting in peace of mind. He is a proud father of three and devoted husband of 20 plus years.

Some of Paul’s accomplishments:
Regular contributor to the Centre Daily Times, via the “It’s Your Money” blog
Featured in the movie Navigating the Fog of Investing
Regular contributor to Town & Gown as the publications Investor Coach
Host of the weekly iTunes Podcast, It’s Your Money
Member of the Western PA Better Business Bureau
Member of the Centre County Chamber of Business and Industry