Best Financial Advisors in Washington, DC

A recent academic study highlighted how “familiarity bias” can impact our financial decisions. Familiarity turns into unnecessary risk if it plays too large of a role in your investment decisions. Why? Because the U.S. stock market isn’t always your best investment option. Of course, over different periods of time, the U.S. stock market does grow at a faster rate than international stock markets. In fact, we’re currently living through this scenario. But on average, going back to 1975, such “outperformance” only lasts for 7.9 years. And that’s the point at which you begin to wish you had given the world’s many other stock markets a chance. It happened between 2000-2009, for example. During that time span, an index fund composed of companies in [international] markets beat the U.S.’s S&P 500 Index seven times. None of us can entirely escape familiarity bias. But you also don’t need to overcome this human shortcoming on your own. Several financial institutions offer an index fund that includes both U.S. and international stock markets. At Vanguard, for instance, the Total World Stock Index Fund contains a mix of U.S. and foreign companies that largely reflects the composition of the global economy. And most of the “target date” funds that you’ll find in your company retirement plan include international companies in their investment mix. The U.S. isn’t always the greatest country in the world for investing, and you’ll benefit over the long term if you act accordingly.