hompage
  • Banking
    Best Products
    • Savings Accounts
    • Money Market Accounts
    • CD Rates
    • Checking Accounts
    Calculators
    • Compound Interest Calculator
    • Savings Calculator
    • CD Calculator
    • Retirement Calculator
    • See All Calculators
    Popular Reviews
    • Bank of America
    • Capital One 360
    • Chase
    • Citibank
    • Marcus Goldman Sachs
    Read & Learn
    • America's Best Rates
    • Bank Fees Survey
  • Investing
    Best Products
    • Best Money Investment Options
    • Best Brokerages
    • Best Robo Advisors
    Calculators
    • Investment Calculator
    • Compound Interest Calculator
    • Retirement Calculator
    Popular Reviews
    • Ally Invest
    • Merill Edge
    • TD Ameritrade
    Read & Learn
    • Investment Quiz
    • Tax Preparation Fees
  • Personal Loans
    Best Products
    • Best Personal Loans
    • Debt Consolidation Loan
    • Home Improvement Loan
    Calculators & Guides
    • Personal Loan Calculator
    • Boat Loan Calculator
    • Guide to Personal Loans
    Popular Reviews
    • Best Egg Review
    • LendingClub Review
    • Lightstream Review
    • Payoff Review
    • Prosper Review
    • SoFi Review
    • Upgrade Review
    • Wells Fargo Review
  • Credit Cards
    Best Cards
    • Best Credit Cards of 2023
    • Best Balance Transfer Credit Cards
    • Best Business Credit Cards
    • Best Cash Back Credit Cards
    • Best Rewards Credit Cards
    • Best Secured Credit Cards
    • Best Student Credit Cards
    • Best Travel Credit Cards
    Calculators
    • Credit Card Interest Calculator
    • Debt Payoff Calculator
Best Products
  • Savings Accounts
  • Money Market Accounts
  • CD Rates
  • Checking Accounts
Calculators
  • Compound Interest Calculator
  • Savings Calculator
  • CD Calculator
  • Retirement Calculator
  • See All Calculators
Popular Reviews
  • Bank of America
  • Capital One 360
  • Chase
  • Citibank
  • Marcus Goldman Sachs
Read & Learn
  • America's Best Rates
  • Bank Fees Survey
Best Products
  • Best Money Investment Options
  • Best Brokerages
  • Best Robo Advisors
Calculators
  • Investment Calculator
  • Compound Interest Calculator
  • Retirement Calculator
Popular Reviews
  • Ally Invest
  • Merill Edge
  • TD Ameritrade
Read & Learn
  • Investment Quiz
  • Tax Preparation Fees
Best Products
  • Best Personal Loans
  • Debt Consolidation Loan
  • Home Improvement Loan
Calculators & Guides
  • Personal Loan Calculator
  • Boat Loan Calculator
  • Guide to Personal Loans
Popular Reviews
  • Best Egg Review
  • LendingClub Review
  • Lightstream Review
  • Payoff Review
  • Prosper Review
  • SoFi Review
  • Upgrade Review
  • Wells Fargo Review
Best Cards
  • Best Credit Cards of 2023
  • Best Balance Transfer Credit Cards
  • Best Business Credit Cards
  • Best Cash Back Credit Cards
  • Best Rewards Credit Cards
  • Best Secured Credit Cards
  • Best Student Credit Cards
  • Best Travel Credit Cards
Calculators
  • Credit Card Interest Calculator
  • Debt Payoff Calculator
    Ad Disclosure
    Compare MMA Rates
Advertiser Disclosure: Many of the offers appearing on this site are from advertisers from which this website receives compensation for being listed here. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). These offers do not represent all account options available. Click here to go to our Editorial and UGC disclosure. *APY (Annual Percentage Yield).
Please enter the text to be searched

Home-Field Advantage – 7 Reasons to Favor US Stocks

Advocates of international investing caution against falling victim to a home-country bias, but there are reasons to prefer U.S.-based stocks.
mm
Written by
Richard Barrington
mm
Updated by
Kristin Marino
Last updated: September 23, 2022
Our articles, research studies, tools, and reviews maintain strict editorial integrity; however, we may be compensated when you click on or are approved for offers from our partners.
analyzing data close-up of young business team working together

Formed in 1963, the venerable Magellan Fund helped raise investor awareness of international investing during the 1970s. During the 1980s, there was a big push in the investment-management community to convince investors to diversify their portfolios globally. All these years later, do the classic arguments for international investing remain valid?

While the answer is yes, there are still good reasons to favor U.S.-based stocks in your portfolio — especially today.

Arguments for international investing

Here are three of those classic arguments for international investing:

1. To be more representative of the global market. On a capitalization basis, U.S. markets represent just over one-third of all publicly traded stocks in the world. So, the argument goes, if you limit yourself solely to U.S. stocks, you are playing the game in just one-third of the field.
2. To reduce risk through diversification. Stock performance varies from country to country, so by diversifying internationally you can reduce portfolio risk by having a chance of holding investments in some countries that are doing better when the U.S. is down.
3. To capture emerging market growth. The U.S. has a very mature economy, while countries in earlier stages of their development tend to have more dynamic growth. Investing internationally is a way to capture some of that dynamic growth.

Many U.S. investors have no or limited international stock allocations in their portfolios. Investment professionals tend to blame this on a home-country bias — the reality that it is always easiest to invest in one’s home country, and investors tend to be more comfortable with familiar companies.

It does make sense to break free of this home-country bias, but should you reduce your U.S. holdings to about a third of your portfolio, in keeping with the U.S. share of global market capitalization? There is an argument to be made that you should not go that far. When it comes to the U.S., there may be good reasons for retaining some degree of home-country bias.

Why a U.S. investment bias makes sense

While diversifying internationally is well worth considering, when it comes to a discussion of country bias, it should be acknowledged that the U.S. occupies a unique position on the global financial stage. This may well justify a larger allocation than its share of global capitalization.

1. Currency risk. When you invest in a foreign market, you have to worry not only about the performance of the individual stocks or markets you invest in, but also the direction of that country’s currency relative to the U.S. dollar. You could hedge this with currency trading, but that introduces a whole other level of complexity and expense to your investment program. While even domestic investments are affected indirectly by currency fluctuations, international investments intensify this risk.
2. The “big dog” effect. The notion of reducing risk by diversifying with foreign stocks works better for investors in other countries than for U.S. investors. Why? The U.S. is the big dog in the global economy. When the U.S. economy is doing poorly, it tends to drag other stock markets down, diminishing (though by no means eliminating) the diversification benefit of foreign investments.
3. Liquidity. The U.S. stock market is by far the world’s biggest, at about five times the size of the next largest. When it comes to being able to trade stocks efficiently even during times of investor distress, the U.S. has an advantage over most other countries.
4. Relative strength. This is a situational rather than systematic reason for maintaining a heavier weighting toward U.S. stocks: The U.S. economy is running pretty well right now, while much of the rest of the world is struggling.
5. Interest rate environment. As low as they are in the U.S., interest rates are even lower in some other countries (especially relative to inflation). Falling interest rates tend to boost stock prices, but once rates are already low, you should be concerned that the inevitable bounce-back in rates will create a headwind for stocks going forward.
6. Credit risk. Switching to the bond side of the portfolio, U.S. Treasuries carry less credit risk than the government bonds of many other countries — something to keep in mind in the wake of repayment failures by countries such as Argentina and Greece.
7. Political risk. It is easy to take for granted the institutional stability and rule of law in the U.S., but don’t expect similar protections everywhere you invest. There are good reasons to avoid investing in certain countries.

If you ignore non-U.S. investments altogether, you can be accused of home-country bias. However, if you decide to maintain a majority position in U.S. stocks, it may well be the result of a reasoned investment decision.

More from MoneyRates.com:

Need the best money market account? Heed these tips

When banks fail: Maximizing your FDIC insurance coverage

Synchrony Bank: Online accounts, community focus

About Author
mm
Richard Barrington
Richard Barrington has been a Senior Financial Analyst for MoneyRates. He has appeared on Fox Business News and NPR, and has been quoted by the Wall Street Journal, the New York Times, USA Today, CNBC and many other publications. Richard has over 30 years of experience in financial services. He has earned the Chartered Financial Analyst (CFA) designation from the Association of Investment Management and Research (now the “CFA Institute”).
See Best MMA Rates 2021
top-reviews RELATED ARTICLES
When Opening Multiple Money Market Accounts Is A Smart Move
By Richard Barrington
IRA Money Market Accounts for Retirement Savings
BY Richard Barrington
2019 Outlook - 6 Factors Affecting Savings & Money Market Rates
BY Richard Barrington
Money Market Accounts Vs. Savings Accounts
BY Richard Barrington
Batter Up! 9 'Players' for Your Investment Line-Up
BY Richard Barrington
7 Straightforward Rules for Asset Allocation
BY Richard Barrington
Shareholder Rights - Are You A Shark, Lion or Sheep?
BY Richard Barrington

Home » money-market-account » Home-Field Advantage – 7 Reasons to Favor US Stocks

hompage
  • About Us
  • Contact Us
  • Privacy Notice
  • Terms of Service
© 2023 MoneyRates
Twitter
Advertiser Disclosure: Many of the offers appearing on this site are from advertisers from which this website receives compensation for being listed here. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). These offers do not represent all account options available. *APY (Annual Percentage Yield).
Editorial Disclosure: This content is not provided or commissioned by the bank advertiser. Opinions expressed here are author's alone, not those of the bank advertiser, and have not been reviewed, approved or otherwise endorsed by the bank advertiser. This site may be compensated through the bank advertiser Affiliate Program. To learn more about our approach to content and product assessments, visit our Editorial Policy and Product Assessment Methodology page.
UGC Disclosure: These responses are not provided or commissioned by the bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the bank advertiser. It is not the bank advertiser's responsibility to ensure all posts and/or questions are answered.
Information from third party sources deemed reliable but not guaranteed. Disclaimer: Because rates and offers from advertisers shown on this website change frequently, please visit referenced sites for current information. This website may be compensated by companies mentioned through advertising, affiliate programs or otherwise.
Do Not Sell or Share My Personal Information
© 2023 MoneyRates