One argument is that the US stock market already contains a lot of global exposure as many/most large US firms are internationally diversified themselves. Buying global funds means you’re actually under-investing in the USA relative to the world as 40% of your “US companies” are actually global companies.
I don’t vouch for this argument, it’s just something I’ve heard which sounds somewhat plausible.
I’m not a fan of this argument because even if you have some global coverage, why not get more and reap the benefits of diversification? It’s like saying hey I already own 2 car company stocks, there’s no point in owning all US car company stocks. Sure the stocks might move in tandem most of the time, but diversification allows you to reduce risk.
Hmmm. So I don’t think more global exposure = more diversified. What you should be aiming for is investing in each country/region in proportion to it’s share of the market.
Consider the following situation
The USA is 30% of global markets
A global index fund invests in world equities, putting 30% of it’s money in the US market
The US market is actually also 50% invested abroad
Hence the index fund is really only putting 15% (30/2) in the US and is underweighted towards the US
One argument is that the US stock market already contains a lot of global exposure as many/most large US firms are internationally diversified themselves. Buying global funds means you’re actually under-investing in the USA relative to the world as 40% of your “US companies” are actually global companies.
I don’t vouch for this argument, it’s just something I’ve heard which sounds somewhat plausible.
I’m not a fan of this argument because even if you have some global coverage, why not get more and reap the benefits of diversification? It’s like saying hey I already own 2 car company stocks, there’s no point in owning all US car company stocks. Sure the stocks might move in tandem most of the time, but diversification allows you to reduce risk.
Hmmm. So I don’t think more global exposure = more diversified. What you should be aiming for is investing in each country/region in proportion to it’s share of the market.
Consider the following situation
The USA is 30% of global markets
A global index fund invests in world equities, putting 30% of it’s money in the US market
The US market is actually also 50% invested abroad
Hence the index fund is really only putting 15% (30/2) in the US and is underweighted towards the US