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Why do most people recommend you put a majority of your stock in domestic companies?

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  • Why do most people recommend you put a majority of your stock in domestic companies?

    My question is more out of curiosity. But why do most people recommend you put the majority of your stocks in domestic funds? It seems like most people are something like 80/20, 75/25, or 67/33 in domestic/international ratio.

    According to a quick Google search, the US companies make up 54% of the total world stock market.

    My question is: Do people recommend to have a tilt toward US domestic stocks because we (or most of us) are American, or is it because the American market is seen as more stable?

    If someone was British, Japanese, Canadian, French, Mexican, etc. would you still recommend they invest the majority in American companies, or would you recommend they invest in their home market?

    Once again, this is just a question out of curiosity. I am currently invested in... don't kill me... 100% S&P 500 index funds. Oh, and I'm American too. My main reason for investing in S&P 500 is because that's the companies that I recognize, if that makes sense.

  • #2
    Yes.

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    • #3
      Originally posted by Peds View Post
      Yes.
      Thanks

      Comment


      • #4
        Originally posted by Romberg45 View Post
        My question is more out of curiosity. But why do most people recommend you put the majority of your stocks in domestic funds? It seems like most people are something like 80/20, 75/25, or 67/33 in domestic/international ratio.

        According to a quick Google search, the US companies make up 54% of the total world stock market.

        My question is: Do people recommend to have a tilt toward US domestic stocks because we (or most of us) are American, or is it because the American market is seen as more stable?

        If someone was British, Japanese, Canadian, French, Mexican, etc. would you still recommend they invest the majority in American companies, or would you recommend they invest in their home market?

        Once again, this is just a question out of curiosity. I am currently invested in... don't kill me... 100% S&P 500 index funds. Oh, and I'm American too. My main reason for investing in S&P 500 is because that's the companies that I recognize, if that makes sense.
        Good question. I think there are a lot of possible answers and I'm sure if varies from person to person. Personally, I'm not as committed to having the majority of my equity investments in US (currently I'm about half or more international). But I think for a lot of people, like you indicated, it's the comfort of investing in a more familiar market, and also the perception of more stability and protection. Also there's some recency bias, since the past ten or more years the US has outperformed. Regarding your other question, my guess is that international investors in other established capitalist economies end up less invested in the US market compared to US citizens (if true, it's probably for some of the same reasons such as comfort of investing in a more familiar market), but that's just a guess.

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        • #5
          There are a lot of things in the US economy that facilitate companies doing well. There is some home bias. There is also Bogle’s argument that the economy is now so international that a not insignificant proportion of US equities really represent some international flair.

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          • #6
            Lots of reasons.
            1. You could point to the last 30 or 40 years of Warren Buffett recommending that you invest in stocks over bonds and don't bet against America.
            2. You could point to an inherent inflation hedge in investing in assets denominated in the world's reserve currency. (Although American Depository Receipts might mitigate this concern.)
            3. You could point to demographic pressures, excessive regulation, and punitive taxation in old Europe and Japan. You have moribund banks and automakers plus Spotify and Softbank. No real FAANGs or other barnburners to speak of in Western Europe and Japan.
            4. You could look at how international the operations and revenue of the largest U.S. companies are anyway. FAANGs, Intel and AMD, Coke, Caterpillar, etc. vs. Nestlé, Bayer, Toyota and the other usual suspects. Most big U.S. companies are truly global companies, but with better shareholder rights and a stronger emphasis on accountability.
            5. You could look at the legacy of the English common law and protection for shareholders. Company founders, executives, and directors who perform well are rewarded far more generously in the United States than in other First World countries.
            Of course, one could make a decent counterargument for most of the points listed above. Perhaps the strongest would be an emphasis on the next quarter vs. an emphasis on the next decade or so. On the other hand, if you finally are going to turn a decent profit ten years from now, I might as well take my sugar high excess quarterly returns now, then invest in the "we'll turn a profit in a decade" company eight years from now.

            Personally, I think tax policy that incentivizes entrepreneurs and rule of law that gives shareholders effective redress are important. How many brilliant would-be company founders leave the U.S. for France or Japan instead of the other way around? (No really, name a few.) What's the private venture capital culture in old Europe and Japan vs. the State picking winners? What recourse do foreign investors have for fraud and confiscation of company assets in China versus the United States? (Tik Tok is an unfortunate counter example, but I digress.)

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            • #7
              Because in America, a multitude of corporations exist in a stable capitalistic socioeconomic situation in which they can lubricate the political/tax system in which the maximization of greed can be actualized. So ride those coattails. Or roll the dice and invest in the Netherlands or New Zealand.

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              • #8
                Originally posted by burritos View Post
                Because in America, a multitude of corporations exist in a stable capitalistic socioeconomic situation in which they can lubricate the political/tax system in which the maximization of greed can be actualized. So ride those coattails. Or roll the dice and invest in the Netherlands or New Zealand.
                Vacation, work, or live in the Netherlands or New Zealand instead of many places in the U.S.? Sure —both of the aforementioned smaller countries are awesome! They have nice weather, good food and drink, low crime rates, good schools, etc. I like both Holland and Kiwiland better than plenty of places the US military routinely sends people for CONUS assignments.

                Invest in the S&P 500 and skip the Netherlands or New Zealand? Probably no long term harm. Invest in the Netherlands and/or New Zealand to the exclusion of U.S. equities? Yeah, I don’t thing that’s an appropriate risk-adjusted bet even if by happenstance that turns out to be the right call looking backwards 30 or 40 years from now.

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                • #9
                  This is just my opinion of course.... but for starters I do believe the US is held to higher accounting standards than say China. If you believe any number produced from the Chinese without further research then I have a bridge in Brooklyn to sell ya. Europe gives employees 6 -10 weeks vacation. Sorry but that’s not bringing in the same revenue as america which gives maybe tops 4 weeks, most are within 2-3 weeks.

                  also the USD is important. If you say you bought a CD in India that gives 7% return.... (which is currently offered in past 2-3 years)z well that’s fine and dandy but if the India currency falls against the USD which it has. Than that 7 percent gain is more like a 1-2% gain when you convert your winnings back to USD. So if USD falls then hey you win, but if not which is more likely IMO then foreign investment is not near as good.

                  also how do you even trust foreign investment numbers. I mean even if amazon or Apple tried to fudge sells numbers in the US they would be caught.... don’t feel like the top company in Singapore/Vietnam/Brazil/Mexico, etc... would face the same scrutiny in accounting standards... just my opinion. But can’t trust them as much as US.



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                  • #10
                    Who is "most people?"

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                    • #11
                      Originally posted by Jack_Sparrow View Post
                      This is just my opinion of course.... but for starters I do believe the US is held to higher accounting standards than say China. If you believe any number produced from the Chinese without further research then I have a bridge in Brooklyn to sell ya. Europe gives employees 6 -10 weeks vacation. Sorry but that’s not bringing in the same revenue as america which gives maybe tops 4 weeks, most are within 2-3 weeks.

                      also the USD is important. If you say you bought a CD in India that gives 7% return.... (which is currently offered in past 2-3 years)z well that’s fine and dandy but if the India currency falls against the USD which it has. Than that 7 percent gain is more like a 1-2% gain when you convert your winnings back to USD. So if USD falls then hey you win, but if not which is more likely IMO then foreign investment is not near as good.

                      also how do you even trust foreign investment numbers. I mean even if amazon or Apple tried to fudge sells numbers in the US they would be caught.... don’t feel like the top company in Singapore/Vietnam/Brazil/Mexico, etc... would face the same scrutiny in accounting standards... just my opinion. But can’t trust them as much as US.
                      Singapore is considered to be among the least corrupt nations in the world, and my guess is that their accounting standards are just as rigorous as in the US (or possibly more so). You can throw in a whole bunch of other developed nations in Asia (Japan, South Korea) and Europe (Denmark, Germany, Switzerland, etc) and probably other parts of the world that are similar to Singapore in that regard.

                      Originally posted by burritos View Post
                      Because in America, a multitude of corporations exist in a stable capitalistic socioeconomic situation in which they can lubricate the political/tax system in which the maximization of greed can be actualized. So ride those coattails. Or roll the dice and invest in the Netherlands or New Zealand.
                      Lol, good point. Corporations pretty much run the show in the US, so that might be a positive for shareholders of US companies vs the rest of the world.

                      Comment


                      • #12
                        Originally posted by Hank View Post

                        Vacation, work, or live in the Netherlands or New Zealand instead of many places in the U.S.? Sure —both of the aforementioned smaller countries are awesome! They have nice weather, good food and drink, low crime rates, good schools, etc. I like both Holland and Kiwiland better than plenty of places the US military routinely sends people for CONUS assignments.

                        Invest in the S&P 500 and skip the Netherlands or New Zealand? Probably no long term harm. Invest in the Netherlands and/or New Zealand to the exclusion of U.S. equities? Yeah, I don’t thing that’s an appropriate risk-adjusted bet even if by happenstance that turns out to be the right call looking backwards 30 or 40 years from now.
                        In the Netherlands you could have made money had you been employee 1-10 for the Dutch East India Company IPO. Also, if you were early in and early out in the tulip bubble, you might have made some Tesla money. But otherwise the best feature of that country is that you can bike around safely without helmets. For New Zealand, they drive on the left side. You can tell the Americans because when they get to the intersection they'll activate the windshield wipers when trying to turn on the blinkers. Also, I recommend that you get insurance on your rental cars cause the Keas(green parrots) dig into the cracks of your car and sometimes can do damage that you don't want to pay for.

                        Comment


                        • #13
                          Originally posted by burritos View Post

                          In the Netherlands you could have made money had you been employee 1-10 for the Dutch East India Company IPO. Also, if you were early in and early out in the tulip bubble, you might have made some Tesla money. But otherwise the best feature of that country is that you can bike around safely without helmets. For New Zealand, they drive on the left side. You can tell the Americans because when they get to the intersection they'll activate the windshield wipers when trying to turn on the blinkers. Also, I recommend that you get insurance on your rental cars cause the Keas(green parrots) dig into the cracks of your car and sometimes can do damage that you don't want to pay for.
                          Most educational post so far in this thread. Thanks!

                          Comment


                          • #14
                            Originally posted by Hank View Post
                            Lots of reasons.
                            1. You could point to the last 30 or 40 years of Warren Buffett recommending that you invest in stocks over bonds and don't bet against America.
                            2. You could point to an inherent inflation hedge in investing in assets denominated in the world's reserve currency. (Although American Depository Receipts might mitigate this concern.)
                            3. You could point to demographic pressures, excessive regulation, and punitive taxation in old Europe and Japan. You have moribund banks and automakers plus Spotify and Softbank. No real FAANGs or other barnburners to speak of in Western Europe and Japan.
                            4. You could look at how international the operations and revenue of the largest U.S. companies are anyway. FAANGs, Intel and AMD, Coke, Caterpillar, etc. vs. Nestlé, Bayer, Toyota and the other usual suspects. Most big U.S. companies are truly global companies, but with better shareholder rights and a stronger emphasis on accountability.
                            5. You could look at the legacy of the English common law and protection for shareholders. Company founders, executives, and directors who perform well are rewarded far more generously in the United States than in other First World countries.
                            Of course, one could make a decent counterargument for most of the points listed above. Perhaps the strongest would be an emphasis on the next quarter vs. an emphasis on the next decade or so. On the other hand, if you finally are going to turn a decent profit ten years from now, I might as well take my sugar high excess quarterly returns now, then invest in the "we'll turn a profit in a decade" company eight years from now.

                            Personally, I think tax policy that incentivizes entrepreneurs and rule of law that gives shareholders effective redress are important. How many brilliant would-be company founders leave the U.S. for France or Japan instead of the other way around? (No really, name a few.) What's the private venture capital culture in old Europe and Japan vs. the State picking winners? What recourse do foreign investors have for fraud and confiscation of company assets in China versus the United States? (Tik Tok is an unfortunate counter example, but I digress.)
                            Against these points Hank:
                            2. The USD is negatively correlated to resource prices. Resources are correlated to inflation. Often, a period of low inflation is marked by high USD and low resource prices. Hence USD assets and particularly the SP500 is not a good inflation hedge. Not only from the USD front: due to the very low weighting of resource stocks in the SP500, I would expect it have crushingly
                            bad performance during a moderate inflation environment (but I could be wrong).
                            3. Japan and Europe have poorer demographics than the US. EM has more favourable demographics
                            4. If you look at most large country indexes, they are often dominated by multinationals. This is not unique to the US. For instance the FTSE 100 top 10 is largely multinationals. This has not stopped the FTSE performing very poorly over the last 10 years.

                            On tax policy and the effect on shareholder/index returns, I would argue that the US taxation share is too low (hence rising % government debt). In other countries it maybe too high.

                            If taxation corporate tax share is lower, this is a a redistribution from the government sector to the corporate sector. As the profits get dispersed back to shareholders, it is ultimately a redistribution from the non-shareholder taxpayers to shareholder households. It’s very interesting when you compare effective taxation rates for capital and labour in different countries.
                            Last edited by Dont_know_mind; 10-03-2020, 05:13 AM.

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                            • #15
                              Originally posted by burritos View Post
                              Because in America, a multitude of corporations exist in a stable capitalistic socioeconomic situation in which they can lubricate the political/tax system in which the maximization of greed can be actualized. So ride those coattails. Or roll the dice and invest in the Netherlands or New Zealand.
                              Actually, if you had invested in New Zealand index over the last 10 years, you would have done as well as the SP500. It’s share market has had a stellar run, which I only noticed a few months ago when I had a look at the NZ50 chart.

                              What is really amazing is that they appear to have no capital gains tax in New Zealand. I’m not sure if I am misunderstanding/ misreading NZ tax law, but that would make the last 10 years of after-tax return amazing.

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