🧠 Investing... patriotically?

Is it that dramatic?

Author

Nessrine Slimani
December 18, 2025

In 2021, French investors put around 8% of their stock investments into French companies, even though the French market only makes up 3.4% of global stock market value.

For Germans, it's nearly 9%, whilst Germany only accounts for 2.4% of global market capitalisation.

These figures include both private and institutional investors. But when we look at households alone, the study shows their portfolios are even more influenced by familiarity bias (common language, geographical proximity, etc.)

Looking at this trend, we can ask three questions:

  • Why do we invest so heavily "at home" when there are plenty of opportunities elsewhere?

  • Are we really safer sticking to our own country?

  • Is international diversification riskier, or is it pointless?

We're surrounded by domestic companies: we read their news, we understand their environment, we might even know people who work there.

Foreign markets, on the other hand, automatically seem more distant, opaque and riskier to us.

But are we self-sabotaging with this home bias?

The real risk: concentration

Putting most of your investments into your home market exposes you to two problems:

  1. No airbags:

If your country goes through an economic, political or sector crisis, you're hit on all fronts at once. Your personal situation (job, purchasing power, local economic stability) AND your investment portfolio.

  1. A missed opportunity cost

You miss out on growth opportunities by limiting yourself to 3% (or less) of the global market. Investing heavily in a single country means betting that THIS country will be THE growth zone for the coming decades. That's quite a risky conviction.

Something to think about: global allocation

In 1964, economist William Sharpe put forward his theory of the optimal portfolio in the Journal of Finance. According to him, the most efficient portfolio (meaning it offers the best risk/return trade-off for a rational investor) contains all available assets, weighted by their market capitalisation.

If we extrapolate this idea to geographical diversification, it would mean reflecting the real weight of global markets in your investment portfolio.

Right now, that would give roughly:
~60% United States
~14% Europe
~7% Japan
~22% emerging markets

Does that ring a bell? 🙂

Today, index ETFs apply this strategy on a large scale. But like any strategy, it has its strengths and weaknesses.

Criticism #1: The illusion of total protection

With globalisation, markets are now hyper-connected.

During major crises (2008, 2020), all assets drop together, regardless of where they are.

Geographical diversification softens local shocks (like a localised recession), but remains vulnerable to global systemic shocks.

Criticism #2: Overweighting mature markets

Following global weights means investing heavily where markets are more likely to grow slowly, because they're already mature.

This dilutes your exposure to underweighted but potentially dynamic zones. Some European national indices (Poland, Spain) have, for example, shown double-digit returns in recent years, despite their small weight in global indices.

(Disclaimer: this isn't investment advice. Past performance is never a guarantee of future performance.)

From theory to practice

Whilst theoretical models are useful, your personal situation should guide your decisions.

Before choosing your geographical allocation, ask yourself three key questions:

  • What's your investment time horizon for your financial goals?
    Investing to get your money back in 5 years doesn't call for the same strategy as a 20-year horizon.

  • What's your risk tolerance?
    Can you handle a -15% drop without panicking, or are you tempted to cut your losses?

  • Do you have specific constraints?
    Liquidity, tax, ethical preferences, etc.

It's the answers to these kinds of questions that should guide your allocation too.
Not just theoretical formulas.

Diversifying geographically helps cushion market shocks, as different economies don't follow the same cycle. When one region struggles, the others in your portfolio can help offset the impact.

But this protection has its limits. During a global systemic crisis, all markets risk falling together.

What about you, how do you handle geographical diversification in your portfolio?
Are you intentional about it, or do you leave it to chance?

Feel free to tell me what you thought of today's newsletter, I read all your messages!

Take care,
Nessrine

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Articles, research and studies consulted for this edition:

Important reminder: This content is for educational purposes only, not investment advice. Make sure to do your own research before getting started. And remember that all investments, including ETFs, carry a risk of capital loss.

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