International investing

Your salary arrives in euros. Your rent or mortgage is paid in euros. Your state pension is a claim calculated from German wages. Measured that way, you are already running a portfolio concentrated in one currency and one economy. None of it appears on a statement, and none of it can be sold or rebalanced. The part you can move is the small part.

That is why the standard warning about home bias needs turning around for a reader in Germany. The danger is not that you own too much foreign stock. It is that you pay 0.2% a year for a world index, then treat it as a bet on America and start adding what you think is missing.

Three indices that all call themselves global

MSCI World holds about 1,320 companies from 23 developed markets, and the United States is around 70% of it. Japan is about 5%, the UK roughly 3.5%, Germany around 2.5%.

MSCI All Country World holds about 2,500 companies from 47 countries and adds emerging markets. The US share is roughly two-thirds. A single all-world ETF covers both groups in one line on your statement.

The S&P 500 holds 500 American companies, is 100% American, and is priced in one currency.

The practical difference between the three is easier to see as a table:

The step from MSCI World to ACWI adds emerging markets, about 10% of the index. The step from MSCI World to an S&P 500 tracker removes roughly 30% of it — thirteen hundred companies that are not American. That second step is the one people take without noticing, usually because the returns of the last decade made it feel obvious. A US tracker in a German brokerage account is a decision to own no ASML, no Nestlé, no Toyota, no SAP.

What none of the three solves is concentration at the top. All of them are dominated by the same handful of American technology companies, which is why a world index can fall on a morning when the news in Germany is fine. A world fund does not remove that exposure. It spreads the ownership of it across more of your money, which is a different and more modest claim.

Home bias, measured against your own balance sheet

Nothing here says German companies are a bad investment. The point is arithmetic. Your salary, your housing and your pension already depend on one economy and one currency, and a DAX ETF in the same portfolio doubles the bet on the economy that pays you. The DAX is 40 companies. Between the two, the index fund is the diversified position and the DAX fund is the concentrated one.

It also runs the other way. A world tracker holding 2.5% Germany is not an underweight that needs correcting. It is the market's own number, and a portfolio that owns the world at market weight has made no judgement about Germany at all.

The fairest counter-argument deserves an answer. The large American companies in a world index earn a substantial part of their revenue outside the United States, so the index's revenue exposure is more international than its list of listings suggests. True, and it does not change the two things that matter here: those shares are priced in dollars, and they answer to American regulators, American tax law and American interest rates. A German saver holding a world tracker has diversified the companies and kept a large dollar position.

Currency risk, counted in euros

A world tracker is quoted in euros and holds mostly dollar assets. Of a €50,000 portfolio, roughly €35,000 sits in dollar exposure. A 10% move in the euro against the dollar changes your statement by about €3,500 without a single share changing price. On a €200,000 portfolio, the same move is about €14,000, more than a year of contributions.

None of this is a reason to avoid global funds; it is the price of owning the largest companies in the world. It is a reason to expect the return in euros to differ from the index chart on an American website, sometimes for two years at a time in the same direction. Currency moves have been larger than equity returns in plenty of individual years, and they have also cancelled out over long ones.