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:

Parenting standards and the village

Cartoons Hate Her has written about the village nobody wants. In principle, parents usually want a community to help take care of their kids: someone to bring meals when they get sick, keep an eye on their children while they play, and talk to about paren…

via Thing of Things December 19, 2025

Opinionated takes on parenting

This post is a collection of parenting takes that sometimes go through my head, based on my experience raising our two boys (5 and 2 years old). All of this is based on my experience and might not apply to others (see the law of equal and opposite advice)…

via Victoria Krakovna December 16, 2025

How to Make a Christmas Wreath

Yesterday, I made a Christmas wreath. Here's how to make one. First, find an evergreen tree near your house. Clip off a few branches from the tree. Try to have as many leaves or needles on the branches as possible. Next, bring them home. What I usu…

via Anna Wise's Blog Posts December 6, 2025

more     (via openring)