Watching my kids compete in youth athletics has been one of the most enjoyable parts of being a dad. Now, I’m not a crazy sports parent yelling from the sidelines who thinks his little one has the stuff to make in the big leagues. Been there, done that, saw the movie, hated the ending. No, I’m talking about teaching my children how to kick a soccer ball, playing a game on a frosty autumn morning, or just throwing the frisbee around.
Sports are a microcosm of life, with hopes, fears, excitement, and disappointment. Kids and parents can both learn lessons in teamwork, discipline, tenacity, fairness, and the fact that life can be unfair. And it’s natural to cheer for our kids’ teams. I remember being thrilled to drive to a client meeting hours away, because it was only a few minutes from where my son was playing a high-school hockey game later that evening. I think I was the one of only two parents rooting for our side in the stands that night.
Photo: Doug Tengdin
The home team may get the bigger crowd, but it’s the contest that matters: who’s fastest, grittiest, and has the best skills. Cheerleading doesn’t change the score. We need to remember this when we invest. Most investors have a “home bias,” investing more in stocks and bonds from our home countries and even our home states. Investors on the West Coast tend to overweight tech stocks, those in the Northeast overweight financial firms, folks in the Midwest prefer industrial companies. Studies of institutional investors in bilingual Belgium have shown that Dutch-speaking investors tend to favor Dutch stocks, even while their French-speaking co-workers overweight French stocks.
Source: JP Morgan
It’s important to try to overcome our home bias. Diversification reduces risk – diversification by asset class, industry, and country. The US economy is booming right now, while growth in the rest of the world is lagging. But it won’t always be this way. And strong growth and earnings in the US has made our market valuations more expensive than the rest of the world. But since the dot-com bust, US markets have returned 9.9% per year. The rest of the world has been right behind, at 9.2%. That’s not all that different.
As parents, we’re thrilled when our kids do well on the field. We’re their biggest fans. But as investors, we don’t have a home team. What matters most of all is reaching our objectives with the least risk. That’s a goal that everyone can cheer for.
Photo: Gerd Altman. Source: Pixabay
Douglas R. Tengdin, CFA
Charter Trust Company
“The Best Trust Company in New England”