For many investors, a significant portion of their financial life is already tied to the U.S. economy through their career, income, and home ownership. The question then becomes: should their investment portfolio be concentrated in the U.S. as well, or is there value in looking beyond our borders?

It's not a trick question. But for many high-net-worth Americans, it's one that rarely gets asked.

The U.S. stock market has yielded exceptional returns over the past decade and a half. It's easy to look at that track record and conclude that international investing is an unnecessary distraction. But that perspective misses something important.

Whether U.S. stocks continue to outperform is one question. How much of your financial life should depend on that outcome is another.

Understanding Home Bias

Most investors prefer what feels familiar. Americans tend to invest heavily in American companies. Canadian investors favor Canadian stocks. Japanese investors often allocate more money to Japanese companies.

Behavioral economists call this home bias.

There is nothing inherently wrong with that. People generally have more confidence in businesses they recognize and economies they understand. The problem arises when familiarity leads investors to concentrate too much of their wealth in a single country.

According to the MSCI All Country World Index, the United States currently represents approximately 67% of the global stock market. Despite that, many successful American investors hold portfolios that are 90% to 100% invested in U.S. equities.

Imagine a real estate investor who owned properties exclusively in one neighborhood. Even if the neighborhood had performed exceptionally well for many years, most investors would still recognize the benefits of expanding beyond a single location.

Public markets work the same way.

A portfolio concentrated in one country may perform well for extended periods. That does not eliminate the risk of concentration that comes with heavily depending on a single economy.

The U.S. Market Is Already Highly Concentrated Within Itself

The U.S. stock market itself is heavily concentrated in a small number of companies. The top 10 names in the U.S. market currently represent approximately 39% of the entire index. That is a large amount of concentration, and it means a U.S.-only portfolio is dependent on a handful of companies continuing to perform at an exceptional level.

The best and largest growth companies in the world have been based in the United States, and that is not changing anytime soon. But even great businesses can be priced in a way that limits future returns. And the more concentrated the index, the more dependent investors are on those specific names continuing to deliver.

Valuations Matter: What the Numbers Are Telling Us

The U.S. market is concentrated and priced for a great deal of good news, while many international markets are trading at significantly lower valuations.

According to MSCI, companies outside the U.S. are currently trading at a forward price-to-earnings ratio of approximately 14.24, compared to 21.72 for the U.S. market.

U.S. companies are priced like they're expected to keep outperforming the rest of the world, year after year. That's a high bar to clear consistently. International markets, by comparison, require less to go right to generate reasonable returns.

Geographic Diversification and Your Household Balance Sheet

One mistake investors make is viewing their portfolio separately from the rest of their financial life.

Consider a hypothetical household with:

• A $2.5 million primary residence in New York
• A $1.5 million deferred compensation plan
• Significant company stock accumulated through RSUs
• Household income of $1 million annually
• A $5 million investment portfolio

Viewed on its own, a portfolio invested entirely in U.S. stocks may not appear unusual. Viewed alongside the rest of the household balance sheet, the picture looks different.

• The family's employment income depends on the strength of the U.S. economy.
• Their real estate value depends largely on U.S. economic conditions.
• Their equity compensation is tied to an American employer.
• Their future retirement spending will likely occur primarily in the United States.

A portfolio invested almost exclusively in U.S. companies puts even more of your financial life on the same side of the same bet.

Rather than asking, "What should my investments own?" a more useful question may be, "What risks already exist elsewhere in my life?"

Currency Risk: A Factor Worth Understanding

International investing introduces currency exposure. When a U.S. investor owns foreign stocks, returns are eventually translated back into dollars. That translation can work in either direction.

In a weaker dollar environment, currency effects tend to be favorable for U.S. investors in international markets. Foreign returns translate back into more dollars than they would in a stronger dollar period.

That said, currency movements are not automatic or predictable. They depend on relative interest rates, economic growth, inflation expectations, and investor demand across countries. The dollar does not simply weaken because the Fed cuts rates or strengthen when it raises them. The relationship is more complex.

Currency risk adds a layer of variability to international returns. Over long time horizons, this variability tends to average out. For shorter periods, it can amplify or reduce gains.

How Much International Exposure Makes Sense?

This is a question we hear from clients regularly. Truthfully, it depends on the investor, their objectives, and the exposures they already carry elsewhere in their financial lives.

Using the MSCI All Country World Index as a baseline, the U.S. currently represents roughly 67% of global equity markets, with the remaining 33% outside the United States. That is a reasonable starting point for thinking about allocation, and the right answer for any given investor will adjust from there.

For a $5 million equity portfolio, several approaches could look like this:

Example 1: Global Market Representation

(For investors who prefer a starting point aligned to global market weight.)

• $3.35 million U.S. equities (67%)
• $1.65 million international equities (33%)

Example 2: Moderate Geographic Diversification

(For investors who want meaningful international exposure while keeping a domestic tilt.)

• $3.75 million U.S. equities (75%)
• $1.25 million international equities (25%)

Example 3: Limited International Exposure

For investors with fewer U.S. concentrations elsewhere, a shorter time horizon, or a strong preference for domestic markets.

• $4.25 million U.S. equities (85%)
• $750,000 international equities (15%)

None of these are rigid rules. The appropriate allocation depends on your overall circumstances, including income stability, real estate holdings, business interests, time horizon, and tax situation. But the framework is consistent. Your portfolio allocation should account for where your other risks already live.

Looking at the Bigger Picture

Most investors spend far more time thinking about where future returns will come from than asking where their risks already exist.

When your career, compensation, real estate, and spending plans are already tied to one economy, one currency, and a handful of dominant companies, adding a U.S.-only portfolio on top of that is not diversification, especially when the markets are so concentrated.

At Servet Wealth Management, we help successful professionals evaluate their entire financial picture, not just the investments they see on a quarterly statement. By looking at your career, income, taxes, equity compensation, real estate, and investments together, we can identify risks.

To see if we can help you build a more intentional financial plan, click here to schedule a conversation today.

_{Content in this material is for general information only and is not intended to provide specific advice or recommendations for any individual.}

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