Are You Playing Too Safe at Home With Your Stocks?

Why investors secretly love staying close to home

Ask a U.S. investor if they’re diversified and you’ll usually hear: “Sure, I own a total market index fund.” Translation: they own thousands of stocks… from one country.

This isn’t just an American thing. Japanese investors overload on Japanese stocks. British investors overweight the U.K. Australians? Heavy on the ASX. It even has a name in finance research: home bias.

Why does this happen? Familiar logos, local news coverage, and the illusion that “if it’s in my country, I understand it better.” The irony is that a lot of “local” companies are global in their operations, while many foreign giants are just as transparent and regulated as domestic ones.

So the real question isn’t “domestic or international?” It’s: how much of a single country do you really want to bet your future on?

How domestic and international stocks have actually performed

Let’s strip away opinions and look at the scoreboard.

Take U.S. vs. international developed markets (think Europe, Japan, Australia, etc.). If you look at the last 10–15 years, U.S. stocks have trounced most foreign markets. But stretch the timeline, and the story gets a lot messier.

• In the 1980s, Japan and some European markets dominated global returns.
• In the 2000s, U.S. stocks were pretty underwhelming while emerging markets and some European markets soared.
• In the 2010s, the U.S. came roaring back and looked unstoppable.

The pattern? Leadership rotates. No single country stays on top forever, no matter how invincible it feels in the moment.

Researchers at places like the National Bureau of Economic Research and major universities have repeatedly found that:

• Different regions have similar long-term return potential.
• But they often outperform at different times.

That timing difference is exactly why international exposure can help smooth the ride.

Risk: is foreign really that much scarier?

People often say international stocks are “riskier.” That’s only half true.

Domestic stocks usually feel safer because:

• You know the brands.
• You see the headlines.
• You trust the regulators, more or less.

International stocks can introduce:

• Political risk (elections, policy shocks, instability).
• Regulatory risk (different rules, different enforcement).
• Currency risk (your dollars vs. their local money).

But here’s the twist: from a portfolio perspective, international stocks can actually reduce total risk if they don’t move in perfect lockstep with your home market.

Historically, correlations between U.S. stocks and international markets have been less than 1, meaning they’re related but not identical. When one region stumbles, another might hold up better or even rally. That diversification effect can lower the volatility of the whole portfolio.

So yes, individual foreign stocks can feel riskier. But a basket of international stocks, blended with domestic holdings, can make the overall portfolio more resilient.

The currency question: friend or foe?

Currency is where a lot of investors quietly check out and say, “Too complicated. I’ll just stick to U.S. stocks.”

Here’s the simplified version.

When you buy a foreign stock, you’re taking two bets:

• The company’s performance in its local market.
• The currency move between that market and your home currency.

If you’re a U.S. investor buying European stocks:

• If the stock goes up 10% in euros, but the euro falls 5% vs. the dollar, your gain in dollars is closer to 5%.
• If the stock rises 10% and the euro rises 5%, you’ve just juiced your return.

Is that extra volatility annoying? Sometimes. But over long horizons, currency swings often wash out, and they can even provide a diversification benefit because they don’t always move in the same direction as stock prices.

Institutional investors sometimes use currency hedging to smooth this out, especially for bonds. For individual investors, the decision is more practical: do you want simplicity (unhedged, accept the noise) or a slightly smoother ride with more complexity (hedged funds)?

For most long-term equity investors, unhedged international stock exposure is actually pretty common and, frankly, usually fine.

A tale of two portfolios: home-only vs. globally aware

Let’s look at two hypothetical U.S. investors, both starting with $100,000 and investing for 25 years.

• Taylor invests 100% in a U.S. total stock market index.
• Jordan invests 70% U.S., 30% international (developed and emerging).

In some 25-year stretches, Taylor wins by a mile. The U.S. has periods of dominance, and being all-in on the winner looks brilliant.

In other 25-year windows, Jordan’s globally diversified mix:

• Experiences shallower drawdowns in certain crises.
• Has smoother year-to-year volatility.
• Sometimes even outperforms because international markets have their own bull cycles.

There’s no single “correct” winner here. The point is this: when you pick only domestic, you’re making a very loud, very concentrated bet that your country will be one of the world’s standout performers for your entire investing lifetime.

That might work out. But it’s a bigger gamble than most people realize.

Where international stocks really earn their keep

International exposure doesn’t always look heroic year to year. Sometimes it’s just quietly doing its job in the background.

There are a few situations where it really proves its value:

When your home market hits a long rough patch

Think of investors in Japan after 1989. The Nikkei peaked and then spent decades failing to reclaim its old highs. A Japanese investor who stayed only in domestic stocks saw a generation of lost opportunity.

Same story, different flavor, for some European markets during prolonged stagnation. If your entire portfolio is tied to one economy, and that economy hits a structural slowdown, you’re stuck riding it out.

Global investors, on the other hand, can lean on growth from other regions while their home market works through its issues.

When sectors are unevenly distributed by country

Countries are not sector-neutral. The U.S. is heavy on tech and healthcare. Some European markets lean more toward industrials, financials, and consumer staples. Emerging markets often tilt toward commodities, banks, and state-linked enterprises.

If you only own domestic stocks, you’re also making a big sector bet without realizing it. International stocks can fill in the gaps, giving you exposure to:

• Different industry mixes.
• Different economic drivers.
• Different regulatory and competitive environments.

That diversity of business models can help when a particular sector (say, U.S. tech) goes through a nasty correction.

So how much international makes sense?

There’s no magic number, but there are some reasonable ranges.

Global market capitalization data shows that the U.S. is a big chunk of the world, but not the whole thing. Depending on the year, U.S. stocks might be roughly 55–65% of global equity markets. The rest is international.

That’s why many globally oriented investors consider something in this neighborhood:

• 60–80% domestic, 20–40% international for U.S.-based investors.

Some go lower on international because they’re more comfortable at home. Others go closer to market-cap weight (roughly half U.S., half non-U.S.).

What rarely makes sense, if you’re trying to manage risk thoughtfully, is 0% international. That’s less “strategy” and more “habit.”

Practical ways to add international exposure without overthinking it

If you’re not trying to be a global stock picker (and honestly, you probably shouldn’t be), there are simple building blocks:

• A broad international index fund that covers developed markets.
• An emerging markets index fund if you want exposure to faster-growing but more volatile economies.
• Or a single total international fund that bundles developed and emerging together.

Many target-date funds and model portfolios from major firms include a fixed slice of international equities for exactly the reasons we’re talking about: lower concentration risk and better diversification.

You don’t need to nail the perfect allocation. Getting from 0% international to something reasonable and deliberate is already a big step forward.

Taxes, costs, and the boring-but-important stuff

Domestic and international investing also differ on a few practical fronts:

• Expense ratios: International funds sometimes cost a bit more, though broad index funds have gotten much cheaper over time.
• Foreign withholding taxes: Some countries withhold taxes on dividends paid to foreign investors. In taxable accounts, U.S. investors may be able to claim a foreign tax credit; in tax-advantaged accounts, that credit is usually lost.
• Regulatory and accounting standards: Developed markets generally have strong disclosure rules. Emerging markets can vary more, which is why broad indexing is often favored there.

None of these are deal-breakers, but they’re good to know so you’re not surprised when your tax forms show “foreign tax paid” for the first time.

For solid background on diversification and investing basics, the U.S. Securities and Exchange Commission (SEC) and FINRA both publish investor education materials that are worth a quiet read:

• https://www.investor.gov
• https://www.finra.org/investors

When sticking to domestic might still be reasonable

There are a few cases where leaning mostly domestic is understandable:

• You’re in the very late stages of retirement, living mostly off stable income and with limited time horizon for equity volatility to matter.
• Your country’s stock market is already highly globalized in terms of revenue sources, and you’re comfortable with that level of indirect foreign exposure.
• You have strong behavioral reasons: if owning international stocks makes you so uncomfortable that you’re likely to bail at the worst time, that’s a problem in itself.

Even then, it’s worth asking: is your aversion to international based on data, or just habit and headlines?

The uncomfortable truth about home-only portfolios

If you zoom out, a 100% domestic stock portfolio is basically you saying:

“I’m so confident in my country’s future that I don’t need meaningful exposure to the rest of the world’s companies, consumers, or innovation.”

Maybe that confidence pays off. The U.S. has had an incredible run. So have other markets at different times. But markets have a way of humbling certainty.

Adding international stocks isn’t about betting against your home country. It’s about admitting that you don’t actually know which region will lead over the next 20, 30, or 40 years – and positioning your portfolio so you don’t have to guess.

If you like sleeping at night, that’s a pretty reasonable trade.

FAQ: domestic vs. international stocks

Do I really need international stocks if I own big U.S. multinationals?

Large U.S. companies do earn a big chunk of their revenue overseas, so you get some global exposure. But it’s not the same as owning foreign companies directly. You’re still concentrated in one country’s regulatory system, currency, and corporate culture. International stocks add different business models, sectors, and policy environments that U.S. multinationals can’t fully replicate.

Are international stocks always more volatile than U.S. stocks?

Not always. Some international markets can be more volatile, especially emerging markets, but others can be similar or even calmer at times. What matters more is how they interact with your domestic holdings. Even if individual markets are choppy, combining them can reduce overall portfolio volatility because they don’t move in perfect sync.

Should I hedge currency risk on my international equity funds?

For long-term equity investors, many professionals are comfortable with unhedged exposure. Currency swings add noise, but over decades they tend to even out and can diversify risk. Hedging can make sense in some cases (for example with foreign bonds or for very risk-averse investors), but it’s not mandatory for everyone.

How much international stock exposure do most experts suggest?

There’s no universal rule, but a common range for U.S.-based investors is 20–40% of the equity portion in international stocks. Some go lower, some go closer to global market-cap weights. The key is to pick a range you can stick with through good and bad cycles, rather than constantly chasing whatever region just outperformed.

Where can I learn more about diversification and global investing?

For neutral, educational material (no product pitches), check:

• U.S. Securities and Exchange Commission (SEC) investor education: https://www.investor.gov
• FINRA investor resources on diversification and risk: https://www.finra.org/investors
• Background on global economic data and markets from the World Bank: https://www.worldbank.org