Home Country Bias [Post 9]

Who Should Read This

Those who invest heavily in the U.S. stock market compared to other countries.

Why You Should Care

Past performance is not a guarantee of future results. The U.S. stock market has been on a dominant run, but that doesn’t make it invincible.

The U.S. Stock Market

From 1899 to 2022, the United States has taken major strides in stock market control, jumping from 15% of the world share to now representing about 60%.

For some, this may seem like a logical reason to invest solely in the U.S. It appears to be the “safest” due to size and has shown great growth through the years.

However, basing assumptions on the past has faults… Let’s look at Japan’s stock market through the years.

Japan 1965-1990

If you lived in Japan and only invested broadly in your own country’s stock market from 1965 to 1990… you saw great returns in your portfolio. Stocks seemingly climbed higher for 25 years with few hiccups. Why would you ever invest in any other market?

Nikkei 225 index - 67 Year historical chart. MacroTrends. (2023).

https://www.macrotrends.net/2593/nikkei-225-index-historical-chart-data

Japan 1990-2022

Around 1990 however, Japan’s stock market peaked and has not reached that same level for 33 years.

Nikkei 225 index - 67 Year historical chart. MacroTrends. (2023).

https://www.macrotrends.net/2593/nikkei-225-index-historical-chart-data

Imagine being a 55-year-old investor in 1990 Japan and you stopped contributing to your portfolio. By age 88, you never saw your portfolio rise to the same level again. That would be a nightmare.

Conclusion

Being an investor in solely one country is a dangerous game.

Am I anticipating a downfall of the United States and its stock market? No, not really. But I also don’t plan to place myself in a position to be entirely reliant on the stock market performance of one country.

Holding a portfolio of equity in both the U.S. and many other countries around the globe is a sensible way to diversify away the risk of owning investments in a single country.