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

Recent posts on blogs I like:

Solution-Focused Brief Therapy

Look! A therapy technique people don't already know!

via Thing of Things May 14, 2025

Workshop House case study

Lauren Hoffman interviewed me about Workshop House and wrote this post about a community I’m working on building in DC.

via Home April 30, 2025

Impact, agency, and taste

understand + work backwards from the root goal • don’t rely too much on permission or encouragement • make success inevitable • find your angle • think real hard • reflect on your thinking

via benkuhn.net April 19, 2025

more     (via openring)