National bias - favoring domestic stocks - has historically reduced returns for many investors by excluding fast-growing foreign companies and concentrating risk. While mid-2000s frictions (high foreign markups, limited research) made global investing harder, today ETFs, ADRs and modern brokerages lower those barriers. Investors should build a long-term allocation to international equities, mind currency and governance risk, and avoid reactive, short-term switches.
The cost of investing by nationality
Many investors default to home-country stocks. That tendency - call it nationalism - can cut expected returns. When a portfolio concentrates on the S&P 500 or domestic mutual funds alone, it misses fast-growing companies and sectors abroad.
What changed since the 2000s
In 2006 commentators warned that long stretches of weak domestic returns left many U.S. investors behind. That critique still matters: markets move in cycles, and domestic leadership shifts over time. At the same time, global investing has become far easier: fractional shares, low-cost international ETFs, American Depositary Receipts (ADRs) and global brokerage platforms now give direct exposure to many non-U.S. leaders.
Real risks people overlooked
Credit stress, corporate leverage and sector-specific weakness can depress many domestic stocks at once. Analysts issued warnings about downgrade risks in the mid-2000s that highlighted concentrated balance-sheet risk in parts of the U.S. and European corporate base . Those structural risks, plus monetary policy and currency moves, are reasons to diversify beyond borders.
Practical frictions in 2006 that matter less today
In the past, buying a company listed only on a foreign exchange could mean high markups through market makers, limited research coverage, or brokerage friction. Reports from that era described instances of large markups on certain foreign trades 1. Today, most of those frictions are smaller: ETFs and ADRs aggregate foreign shares, many brokerages offer direct access to foreign markets or low-cost equivalents, and research is widely available online.
How to get global exposure without guessing
- Use broad, low-cost international ETFs or mutual funds to gain diversified exposure to developed and emerging markets.
- Consider ADRs for access to single foreign companies that matter to your strategy.
- Watch currency and governance risk: different accounting standards and shareholder protections matter.
- Avoid reactive switching. Build a long-term allocation to non-U.S. equities and rebalance periodically.
Prominent global companies - for example, large Korean and European firms that were less accessible to U.S. retail investors in 2006 - now commonly trade via ADRs or are reachable through ETFs 2. That makes it easier to include truly global leaders in a diversified portfolio without paying obscenely high transaction markups.
Diversification is not a promise of higher returns every year. It is a way to reduce dependence on one economy, one currency, or one set of corporate risks. The tools to do it cheaply and transparently exist today; using them thoughtfully addresses the main complaint from earlier eras: national bias can cost you performance.
- Confirm the details and wording of the Standard & Poor's May 24, 2006 report referenced about downgrade potential.
- Verify reports from the mid-2000s describing large markups (e.g., up to 15%) on some foreign stock trades and the prevalence of such markups.
- Confirm current accessibility (ADRs, ETFs) for specific companies mentioned historically (e.g., Samsung, LVMH) and whether they trade directly on U.S. exchanges or only via ADRs/ETFs.