International Diversification: Why Don’t More Americans Invest Overseas?
Contents
- Why Does Home Bias Dominate American Portfolios?
- The Structure of the US Market Has Changed
- What International Investing Actually Adds
- What Average Return Should You Expect?
- Currency Exposure Matters More Than Most Americans Realize
- Indeed, That’s the Point of International Investing.
- A More Balanced Way Forward
- How to Get Started
- The Best Time to Plant a Tree
I’ve often had the impression that most Americans invest as if the rest of the world barely matters.
Then an industry report came across my desk a few days ago that confirmed my thoughts. According to a recent study, US investors typically keep 85–90% of their equity exposure in the domestic market.
But years of speaking to clients tells me this extreme US home bias isn’t the result of thoughtful strategy. It’s mostly habit—and it leaves investors overexposed to a single market, a single currency, and an increasingly narrow set of companies.
For anyone thinking seriously about international investing, wealth protection, or long-term risk control, understanding this bias—and correcting it—is a must.
Why Does Home Bias Dominate American Portfolios?
Economists have warned about home bias for decades. Investors stick with markets they think they understand, even when those markets become concentrated or overvalued. For Americans, this effect is especially strong.
I think it’s because the sheer size of the US market creates the illusion of diversification, even when the underlying exposures all rise and fall together. (In other words, the opposite of diversification.)
By the numbers, US investors commit far more capital to domestic stocks than Europeans or investors in other developed markets.
Many Americans also assume they gain global exposure automatically because US multinationals operate worldwide. And while there’s some truth to this, that’s not the only important factor – the regulatory and political situation matters as much, if not more, than just where a company sells its products.
The Structure of the US Market Has Changed
Now, that said, a home-biased portfolio doesn’t always create a problem. For the past few decades – relatively and broadly speaking – the US market was the place to be.
But today, technology dominates. A small group of mega-cap companies drives most of the index’s performance.
If you want a clearer picture of how Main Street businesses are doing, look at the Russell 2000. While the mega-cap tech names dominate headlines, the smaller, domestically focused companies in the Russell 2000 have struggled. Their stock performance shows a very different reality from what the large-cap indices suggest.
This matters for one reason: when one sector drives most of the returns, one shock drives most of the downside. Indeed, we’ve seen this just in the last few weeks, with announcements from AI industry companies losing tens of billions of dollars in short order.
What International Investing Actually Adds
Investing outside the US provides access to something the domestic market no longer supplies: meaningful diversification.
International markets offer:
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Sectors underrepresented in US indices.
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Valuation levels that differ significantly from US multiples.
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Exposure to currencies other than the US dollar.
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Separate economic and regulatory cycles.
Certain developed markets trade at lower valuations than the US. Switzerland is a clear example. Its market is built around global pharmaceuticals, consumer staples, and financial stability. The currency has a long history of strength. And when measured in USD, long-term returns have been remarkably resilient.
Emerging markets also play a role. They’ve historically benefited during periods of US dollar weakness, and 2025’s dollar pullback reminded many investors how exposed they are when everything they own is denominated in the same currency.
What Average Return Should You Expect?
A client recently asked what he could expect if he moved his portfolio to Switzerland. We told him 5–7% per year was reasonable. He replied that he’s been earning 10–11% per year in the US.
But he missed an important point – he was only comparing top level returns without looking at the volatility and drawdown risk that comes along with it.
Most Swiss professionals rarely deliver the highest returns in any given year because they avoid the conditions that produce both spectacular gains and spectacular losses.
That’s a feature, not a glitch.
When the next downturn arrives, the same US-heavy portfolio producing 10–11% today will likely give back more than a globally balanced portfolio would. That’s not my guess — that’s what we’ve seen in the past.
For most of our clients who are in wealth preservation mode, a 20, 30, or 40% loss – even temporarily – is a big hit when the wheels come off the wagon. So they don’t take those risks.
Currency Exposure Matters More Than Most Americans Realize
Many investors underestimate how much currency fluctuations affect real returns. Even though the dollar remains the world’s reserve currency, its movements still create volatility for anyone holding only US assets.
From our business perspective, the drop of the dollar this year – by almost 12% at one point – against the DXY (a standardized basket of currencies) was the story of the year and probably contributed to one of the busiest years on record.
For those clients who had invested out of the Greenback before the New Year, on this basis alone they’ve done well.
But it also caused a lot of problems for our clients who own euro denominated real estate developments. They suddenly found servicing their developments and mortgages became that much more expensive.
So, should those clients have invested in Eastern European real estate? From a diversification perspective, I would say yes.
And now, for every gain in the value of that property they see, they will see it in Euros. And from that perspective, they’ll be further ahead than if those dollars had stayed in the US.
Indeed, That’s the Point of International Investing.
That’s the point of international investing: not to guess whether the S&P 500 or the DAX will perform best next year, but to avoid being trapped in a single economic ecosystem. The US market’s heavy concentration in technology, combined with its premium valuations, creates real risk.
Diversification across asset classes, sectors and countries broadens the drivers of return. It lowers reliance on any one thing. None of this eliminates risk, but it spreads it out in a smarter way.
A More Balanced Way Forward
For most clients, a better, more resilient approach looks like this:
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Keep meaningful exposure to the US. For most clients, the US will continue to be their center of vital interests.
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Invest in foreign markets that counterbalance US investments. In the lingo, we look for “negative correlation” – if one asset in a jurisdiction goes down, another asset somewhere else will go up.
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Add currencies that don’t move in sync with the dollar. Easier said than done in today’s world but still worth looking for.
The longstanding home bias among American investors won’t disappear on its own. But the cost of ignoring global opportunities is rising. A US-only portfolio is no longer diversified in any meaningful way. Investors who expand their exposure now put themselves on steadier footing—before the next wave of volatility forces the issue.
How to Get Started
If you’re currently too much in the US market and want to diversify, how can you start doing so? Here are a couple of options:
#1: Invest in US ETFs and mutual funds with foreign exposure. It’s not international diversification in the traditional sense, but it’s better than nothing.
#2: Use Interactive Brokers (for DIY’s): It’s probably the best for US investors who don’t want to, or can’t, move more money offshore. Again, you don’t get true diversification (your funds are still fully in the US system). But you do get the opportunity to invest in a variety of markets and currencies directly. In that sense, you limit your US market risk.
#3: Open an actively managed account offshore: As we’ve covered in our missives, there aren’t many options out there if you’re resident in the US. But if you have a minimum of USD 1,000,000 to invest, there are options out there.
Feel free to get in touch with us as you have questions.
The Best Time to Plant a Tree
As the old fable goes:
The best time to plant a tree was 30 years ago.
The second-best time is now.
International diversification isn’t complicated, but most Americans never take the first step. They stay invested in what they know, even when the risks tied to a single market, a single currency, and a single regulatory system keep rising.
The past year made that clear: concentrated portfolios behaved like concentrated portfolios. Investors who already held foreign assets—whether equities, currencies, or property—saw why global exposure matters.
Because the simple reality is this: Building a more resilient financial life means looking beyond one country.
For some, it will mean foreign investments. For others, they’ll look to move themselves out too.
But whatever your goals, the principle is the same: diversification only works if you actually diversify.
If you’d like help evaluating how international exposure fits into your broader planning, the Nestmann Group advises clients every day on cross-border strategy, banking, residency, and global wealth protection. If you have questions or want to explore what a more internationally balanced approach looks like for your situation, reach out. We’re here to help you think through it the right way.
About The Author
We have 40+ years experience helping Americans move, live and invest internationally…
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We have 40+ years experience helping Americans move, live and invest internationally…
