In short, while we may be always on the lookout for increasingly adventurous holiday destinations, when it comes to investing we're mostly happier to staycation. According to research from asset manager Legg Mason, investors in the UK are only likely to source just over a fifth of their income-bearing securities from overseas ; investors in the US are the most parochial, though, holding 89 per cent in domestic securities. Only Asian investors, it seems, are worldly wise when it comes to investing – a third of their holdings are invested outside of their home markets.
So why this reticence to venture further afield when investing? The answers given by respondents can be summed up in a few rather predictable words: it's too risky.
This is, of course, a cognitive bias that ignores the statistical evidence that a foreign investment isn't in itself any more risky than one at home - a bigger risk is that without international diversification you're exposed to greater specific market risk, and will also miss out when assets elsewhere outperform.
Unfamiliarity is often cited as another reason for sticking with domestic investments. However, it's not much of an excuse given the global exposure both passive and active funds offer - many of which employ local experts that means you don't have to be. Even if you're a die-hard equities investor trading only UK shares, you still need to understand the global competitive landscape in which those companies increasingly operate anyway.
For direct equity investors there are, of course, always the added complications of currency and tax. But while these concerns shouldn't be dismissed entirely (and some brokers still charge pretty onerous FX spreads when trying to buy foreign equities), it's certainly not difficult to buy foreign shares. Selftrade, for one, now provides comprehensive access to 24 exchanges in 10 countries and dealing charges are no different than for domestic equities. Most brokers will also sort out your foreign exchange, and handle dividends, too, so no messing around with foreign currency cheques or onerous paperwork.
True, the highly international FTSE 100 can give you exposure to fast growing emerging markets without any of this hassle. But companies in the US and Europe are doing the same – and in some cases doing it better, too. Some sectors, like automotive, do not really exist here at all, while important megatrends like technology or biotech can only be accessed on a much more dangerously concentrated scale.
As you'll no doubt have noticed we've been steadily increasing our international coverage to help you tap into these rich seams. In recent months the richest of these has been US small caps, the subject of this week's cover feature and a clear example of the supersized gains less adventurous investors are prone to missing out on.
