Common Mistake #6: Ignoring Foreign Investments

Many investors build portfolios almost entirely around domestic stocks. In the US, this bias is especially common. According to broad global equity data, US stocks accounted for approximately 62.6% of the MSCI ACWI investable market index as of March 31, 2024, indicating that roughly two-thirds of the investable global equity market is tied to US companies. The remaining ~37.4% reflects non-US equity market capitalization. Yet many portfolios still allocate little or nothing to international markets.

This article explains why ignoring foreign investments is a common but subtle mistake, how home-country bias quietly concentrates risk, and why global diversification often matters most when it feels least compelling.

Key takeaways

• Domestic-only portfolios concentrate economic and policy risk.
• Global markets do not move in lockstep over long periods.
• Home-country bias feels safe but can reduce diversification benefits.
• International exposure often matters most during regime shifts.
• Geographic diversification is about resilience, not return chasing.

Why staying domestic feels sensible

Investing close to home feels intuitive. Domestic companies are familiar. Financial news is local. Regulations feel predictable. Currency risk disappears from view.

This familiarity creates comfort. It also creates confidence.

Up to this point, nothing looks narrow or risky. After all, many domestic companies generate revenue globally, and US markets have performed strongly for long stretches.

That's why the absence of foreign exposure rarely feels like a mistake.

Here's the assumption most investors rely on

Many investors implicitly assume that domestic markets are enough - that global exposure is either redundant or unnecessary.

This assumption holds during certain periods. When one market dominates global returns, concentration can look like conviction. Past performance reinforces the belief that broader diversification would have diluted results.

So what? What works during one regime doesn't necessarily protect against the next.

This is where geographic concentration quietly enters the picture.

This is where home-country bias becomes a risk

Hypothetical example: Imagine an investor whose portfolio is entirely tied to one country's economy, currency, and policy environment. Growth slows. Fiscal priorities shift. Interest rate dynamics change. Equity returns stagnate for an extended period.

None of these outcomes requires a crisis. They only require divergence.

Global markets are influenced by different growth drivers, demographic trends, monetary policies, and political cycles. Over long horizons, these differences matter. When portfolios ignore them, diversification shrinks - even if holdings appear varied on the surface.

This is where "familiar" becomes fragile.

Why global diversification often disappoints at first

International diversification is rarely rewarding in neat, predictable ways. Returns rotate. Leadership shifts. Periods of underperformance can last years.

This creates a behavioral challenge. Investors add foreign exposure after periods of strong performance-and abandon it after long lags. The benefits of diversification, meanwhile, tend to show up during transitions, not peaks.

Research shown that while correlations between global equity markets can rise during crises, they are far from perfect over time. Geographic diversification reduces reliance on a single economic outcome.

The value isn't constant. It's conditional.

Why investors still avoid foreign exposure

Several factors reinforce home-country bias:

• Familiarity with domestic companies and markets
• Perceived complexity of foreign investing
• Currency fluctuations that feel unpredictable
• Long stretches where domestic markets outperform

These concerns are understandable. But they also encourage portfolios to lean heavily on a single set of assumptions about growth, policy, and stability.

The risk isn't that foreign markets are always better. It's that no single market stays dominant forever.

The one constraint that broadens opportunity

Investors who address this mistake often adopt a simple framing:

Long-term portfolios are built to participate in global growth, not just domestic success.

This doesn't require predicting which country will outperform next. It acknowledges uncertainty.

Supporting approaches - such as viewing portfolios through economic exposure rather than country labels, or periodically reviewing geographic concentration - exist to reinforce this framing, not optimize short-term outcomes.

The goal isn't balance for its own sake. It's the diversification of outcomes.

When domestic focus can still make sense

A domestic tilt isn't automatically wrong. Some investors align portfolios with domestic income, expenses, or liabilities. Others prioritize simplicity.

The distinction, again, is intent.

Ignoring foreign investments becomes a mistake when geographic concentration is accidental - driven by familiarity rather than choice.

Global diversification works when it is deliberate. It fails when it is avoided by default.