July 2016 Market Insight

Where do most people typically invest? Usually, it’s in their own back yard.

This week, advisor Josh Brown shared this graph on his blog, thereformedbroker.com.

The orange bars in the graph below show how large each country market is relative to all world markets. So, the US market is 50.9% of the world’s market value. Canada is 3.4%, the UK is 7.2%, and so on.

The yellow bars show what percentage of investor equity holdings are located in the same country where the investor lives. So, even though the US only makes up roughly half of the world market, its citizens hold about 79% of their holdings in US stocks. You can see that most people prefer to invest in their home country.

This phenomenon is known as home bias. It’s emotionally easier to invest in the familiar, especially for Americans who may perceive international markets as riskier or more unstable.

The potential problem with over-weighting your home country is being overexposed to that market when it's expensive and more likely to decline in value. We believe it makes sense to have a diversified portfolio that is tilted towards the cheapest markets with the most long-term potential.

Thank you for being a client of Whitcomb & Hess.  If you have questions about how this issue affects your personal portfolio, please contact me.

Here is an update of major market returns for the month of July and year to date:

MSCI World ex USA (international stocks)4.921.79
S&P 500 (US large cap)0.167.66
Russell 2000 (US small cap)5.978.32
Barclays US Aggregate Bond0.635.98