Confusing Familiarity With Safety: International Investing and Currency
- Investors often don’t properly diversify because they think international investing is risky. U.S. equities are mistakenly assumed to be the “safest.”
- Even if the U.S. is the safest, that does not mean investors should have all their eggs in one basket.
- Financial economists recommend that investors add international assets to their portfolios, because they actually reduce risk.
U.S. equity investors, acting like individual investors all over the globe, own portfolios that are almost exclusively domestic-oriented. Investors are seemingly avoiding the diversification benefits provided by low-correlating asset classes. The following are four explanations typically offered for the failure to diversify (or only diversify minimally) beyond domestic borders.
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