Since Russia has invaded Ukraine, countless major corporations announced that they are no longer doing business in Russia. This includes Microsoft, Apple, Netflix, IKEA, and many others. Also, two of the largest index providers, MSCI and Russell, will be removing the Russian stock market from their Emerging Markets index.
The average Russian citizen has 95% of their investment portfolio in Russian stocks, despite the Russian stock market representing less than 1% of the world stock market. In fact, investors in Russia have more of a “home country bias” than almost any other country. It’s not totally by choice, as they do not have easy access to international diversification. To put this into perspective, the average U.S. investor has about 70% of their investments in U.S. stocks, but the U.S. stock market represents 60% of the world stock market.
For those of us who are fortunate enough to have access to international stocks, the collapse of the Russian stock market serves as a reminder of the importance of not just investing in your home country. Some may argue that U.S. stocks do have international exposure since they generate more than a third of their revenue overseas, but investing only in the U.S. stock market still means that you are excluding all of the non-U.S. companies. You never know when things can take a turn in a much different direction. Russia is an extreme and unique example, but Russian investors lost 80% of their portfolios in just 30 days. And, that’s not even including the erosion of purchasing power caused by the Ruble crashing.
Is there anything for you to do with this information? Probably not. The best course of action is to stick with your investment plan, buy and hold diversified index funds, and not worry about day-to-day market volatility. Stay the course.
As always, reminding you to build wealth by following the two PFC rules: 1.) Don’t invade sovereign democratic nations and 2.) Don’t succumb to hateful propaganda.
-Vivi & Shane
Chart source: iShares MSCI Russia ETF (ERUS)