Index Funds: US vs International

May 23rd, 2018
money
I think the efficient market hypothesis is basically right, in the sense that I'm not not going to be able to beat the average return, and so I'd more or less like to hold an even slice of everything there is to own. Talking to people and reading online, it seems like it's common to invest ~60% in the US and ~40% internationally. Why is that? The US total stock market cap is only about 30-40% of the world's, so I'd think the default position would be to mirror that, perhaps by buying shares in a total-world index. Reasons I've heard for weighting the US higher seem to be based on things like the US having higher returns historically, but that should be priced in.

If anything, I think for Americans overweighting international stocks would make more sense, since we're already very long on the US. Similarly, if there were an index fund that excluded tech I think that would be a good buy for me since I'm effectively quite long there through my investment of being a programmer.

What's going on? Why does "index fund" typically mean "S&P 500" and not "total world"?

(It looks like maybe this is called "home bias" and economists think people shouldn't do it?)

Comment via: google plus, facebook, substack

Recent posts on blogs I like:

Real stages of childhood

I find unenlightening the conventional names for the stages children go through.

via Thing of Things April 28, 2026

You should try contra dancing

a story of middle school Ben • a not-very-illuminating description of the mechanics • flow, joy, and community • the antidote to the rest of life • how to try contra

via benkuhn.net April 24, 2026

On AI writing in 2026

I use AI to write a little bit: I ask it for high level feedback on blog post drafts, make mechanical edits, and sometimes use it to brainstorm options for wording at a paragraph level. It’s unusual that I accept its wording or changes without modificatio…

via Home April 16, 2026

more     (via openring)