Tempted to Overweight US Stocks? Don’t!

Now is one of those times when it will be tempting to give up diversification.

Below is a chart of the S&P 500 index (which is all US Large Company stocks) and a globally diversified 60% stock portfolio. The chart spans the last four years (Jan. 1, 2010 to Dec. 31, 2013)

S&P 500 vs Global Portfolio

Over the last four years the S&P 500 index has done much better. A portfolio concentrated in US stocks would have beaten a more diversified portfolio.

 Danger

Four years can feel like a long time. Families in the US will be tempted to abandon foreign stocks and low risk portions of their portfolio (like bonds).

It is easy to unwittingly chase performance. Who wants to invest overseas where returns have been lagging? There will be a temptation now to overweight in US stocks. Don’t give into this temptation – no matter strong it is.

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