Sticking to familiar names when investing can be a good thing, but too much of it may confine you to a certain area of the marketplace. If you’re one of millions of Americans underallocated in international exchange traded funds (ETFs), it might be time to entertain the idea.
The United States may make up only 42% of the global equity markets, but the average American investor keeps 72% of stock assets in the United States, or what local companies call “home bias,” reports Jason Zweig for The Wall Street Journal.
When American investors did invest overseas, they go “lopsided,” Zweig says, largely jumping at emerging markets. Around 95% of the $25 billion in U.S investor money finding its way into countries like Brazil, Russia, India and China during 2009. By 2010, around $300 billion was directly invested in the developing world, and maybe another $110 billion indirectly. [Reasons to Stick With Emerging Markets.]
The average fund investor’s portfolio includes an allocation of around 68% in the United States, 6% in emerging markets and 26% everywhere else. The MSCI’s All Country World Index approximated that all of the world’s investors have placed around 42% in the United States, 45% in developed foreign markets and 13% in emerging markets. [Indonesia ETF: BRIC Material?]