← Money Lessons with Andrew Temte, PhD, CFA
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More than a third of the world's stock market value sits outside the United States. If you only own American stocks, you hold no stake in any of those foreign companies or markets. That matters because of diversification, a word that we've used before that refers to owning a mix of companies across different industries so that no single stock can sink you for foreign. Hi, I'm Andy Tempte and welcome to Money Lessons. Join me every Saturday morning for bite sized lessons that are designed to improve financial literacy around the world. Today is July 18, 2026. Last week we untangled how a free stock trade actually gets paid for payment for order flow, the quiet arrangement that turns your order into the product being sold. Today we do something different. We widen the map. We've spent this entire series inside American markets. American companies listed on American exchanges, bought and sold in US Dollars. But the United States is not the whole story. A large share of the world's great companies trade somewhere else entirely. And and today I want to make the case that they deserve a place in how you think about owning stocks. So let's start with a number that surprises most people. If you add up the value of every publicly traded company on planet Earth, American companies would make up a little under two thirds of the total, around 63% as of the middle of this year. That is an enormous share for a single country country. But if you turn the argument around, more than a third of the world's stock market value sits outside the United States. If you only own American stocks, you hold no stake in any of those foreign companies or markets. There's a name for the tendency to invest at home and skip foreign markets entirely. It's called home country bias. It is the natural pull to invest mostly in the companies of your own country that names you recognize, the businesses you pass every day and the market whose news you hear each morning. Investors everywhere do it, not just Americans. It feels safe. But safe and familiar are not the same thing. And home country bias quietly narrows your ownership down to the fortunes of a single economy. That matters because of diversification, a word that we've used before that refers to owning a mix of companies across different industries so that no single stock can sink you. Owning companies across different countries is the same idea, only stretched across borders. Economies do not all move together. When one region is struggling, another may be thriving. And spreading your ownership across several of them softens your ride. Now, over long stretches, a decade or more at a time, sometimes American stocks produce the higher returns, and sometimes international stocks do. For most of the Years after the 2008 financial crisis, US stocks handily outperformed the rest of the world. Then in 2025, the pattern flipped. Stocks from developed international markets returned about 32% for the year, while US stocks returned only, and I put that in Qu only 17%. Emerging markets did better, still near 34%. An investor who owned only American stocks in 2025 did just fine, but missed the best returns of the year by a wide margin. No one can predict which part of the world will produce the highest returns in a given year. And that uncertainty is the whole argument for owning both American and international stocks. So how does an ordinary investor like you or me own the rest of the world without opening foreign bank accounts or learning a dozen tax codes? For most people, the answer is an index fund or an exchange traded fund. The ETF that we introduced previously. Just as an S&P 500 fund buys you a slice of 500American companies in one trade, an international index fund buys you a slice of hundreds or thousands of companies spread across many countries in one trade in dollars inside the brokerage account, you already have one purchase and you are no longer betting on a single country. Now, there is a second way to do this, for when you want to own one specific foreign company rather than a broad basket. It is called the American Depository Receipt, or the adr. Here's how an adr, a US bank buys shares of a foreign company on that company's home exchange and holds them. The bank then issues receipts against those shares. And the receipts trade on American exchanges like the New York Stock Exchange or the nasdaq, again in US Dollars during American market hours through your ordinary brokerage account. The Chinese company Alibaba trades in New York. This way, when you buy the Alibaba adr, you're buying a claim on real foreign shares sitting in a bank's custody without ever touching the foreign market yourself. Now, I owe you a quick word on currency risk. Because when you own a foreign company, you're making two bets at once. One bet on the company and one on its home currency against the dollar. If the company's shares climb but its home currency falls against the dollar, then when the stock and convert the proceeds back into dollars, part of your gain is lost to the weaker exchange rate. For a single foreign stock in a single country, that currency bet is concentrated and can be quite large. For a fund holding companies across many countries, the currency exposure is spread across many currencies that do not all move the same way, which softens the effect. This is diversification at work this time on currencies rather than companies. Now, I want to make a distinction that I want to make sure you carry away from this episode, because the single word international hides it. Not all foreign markets carry the same risk. The world's stock markets split roughly into two groups. The first is developed markets, the established, wealthy economies with mature, well regulated stock markets, strong legal protections for investors and stable institutions. Think of Japan, the uk, Germany, France, Switzerland, Australia and Canada. The oldest benchmark for this group is the MSCI EFA index, which stands for Europe, Australasia and the Far East. It's a basket of stocks from developed markets outside the United States and Canada that's been tracked since 1969. Poor Canada, they got left out of everything here. The second group is called emerging markets. These are economies that are growing quickly and industrializing, but have not yet fully arrived on the scene. Examples include China, India, Brazil, Indonesia and Malaysia. Their companies can grow faster than those in developed markets, which is the draw. But these markets are younger and less tested. Investor protections might be weaker, regulation thinner, politics less predictable, and the currency more prone to sharp swings. The risk profile of emerging markets is meaningfully higher, and that higher risk runs in both directions. As mentioned previously, this episode in 2025, emerging markets returned around 34% ahead of both the US and developed international markets. But in a bad year, they can fall just as far. Higher potential reward, higher risk, the same tradeoff we've returned to this entire series. Now, why does this matter to you? Well, because a fund labeled International might hold only developed markets, only emerging markets, or a blend of the two. And those are genuinely different bets. So before you buy, it's worth knowing which one you're holding. Now, what does all this mean for you? Here's the practical takeaway. You do not need to become an expert in foreign markets to own stocks from around the world. A single broad international index fund gives you a stake in hundreds or thousands of foreign companies at once. In one trade, you got many countries in dollars in the brokerage account you already have. And if you want a specific overseas company instead, an ADR lets you buy it on an American exchange without leaving home. The deeper lesson is about home country bias. It's natural to fill your portfolio with the companies you know the best. And there's nothing wrong with keeping a healthy share of your money at home. But home country bias becomes a problem when it is a default rather than a decision. When you own zero international stocks, not because you weighed the choice and declined, but because it never came up more than a third of the world's stock value sits beyond American borders. And some years, as 2025 showed, that is where the strongest returns are. So make the choice deliberate. Decide how much of your portfolio you want outside the United States. And when you do invest abroad, keep the difference between developed and emerging markets firmly in mind, because emerging markets ask you to accept a good deal more risk in exchange for their higher potential reward. Next week, we'll step back and pull this whole equity journey together. We've spent months on what stocks are, how they trade, what they cost, and where in the world to find them. Just like Waldo, the question we have not squarely asked is the biggest one. Why own stocks at all? Next week, the long run case for equity ownership. And why, over a lifetime, it has rewarded the patient investor. Until next week, I wish you grace, dignity and compassion. My name is Andy and this is Money Lessons. You can find the show on all the major streaming services as well as out on YouTube. Please like, subscribe, rate and most importantly, share this public educational good with your friends, your family, your colleagues and maybe a neighbor. The show is produced by Nicholas Tempte and we'll see you next week on Money Lessons.