With David Larrabee, Director – CFA Institute, Expert on Portfolio Management and Equity Investments
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As of March 26, 2015, the S&P 500 index was at about 2,060 – roughly the same level as at the beginning of 2015 – pretty much unchanged. U.S. stocks have been in a secular bull market but appear to be plateauing. But in 2015, other indices performed much better, such as stocks in the Euro Zone that were up about 6% since the beginning of 2015. Even so, most Americans just aren’t watching these trends and likely will not re-balance their portfolios to earn better returns… and risk losing money if American shares fall. This is what economists call the “home country bias” and “familiarity bias” which has worked out really well for Americans in general.
But the U.S. market represents only 50% of the total market for stocks worldwide, and investors here are just not adequately diversified on a global scale. And familiarity can also get you in trouble if your portfolio isn’t well diversified. Just as the Nifty 50 delivered diminishing returns after everyone piled into them and drove them higher, many popular American stocks – such as Apple, Nike or Starbucks – that are riding high, could stop delivering the spectacular returns of the past six years. So review your portfolio for diversification and see if you are adequately diversified.
