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I am 31 years old. For health reasons I am bounded to live in a European country, where I was born and have access to the public healthcare system.

I currently hold a modest portfolio with 20% bonds - 75% stocks - 5% gold that I have been growing steadily, rebalancing every 6 months and with which I feel comfortable.

Of the stock allocation, 25% is in Europe. The rest is, currently: 45% North America, 15% Developed Asia, 15% emerging markets*.

Recently, I have been thinking about completely selling this ETF and specifically skipping the Europe allocation, at least in stocks (FTSE Developed Europe). The reason is quite simple: I feel, due to my situation, that I am over-invested in the EU: I will work in the EU, receive my payments in Euros, my parents have a home in a European country, receive their payments from a European government, and so on...

Does this sound sensible to you? What's your take on skipping bonds from EU governments altogether as well? Note: I know that US-based businesses are also partly dependent on Europe, but at least I would explicitly avoid EU-based companies.

Edit: I add these lines from a comment below, because I think they add my point of view to the question:

  • "Payments/income are not investments" An interesting debate... In my opinion, they are. I invested in a career, which yields dividends (a salary), which is to be considered into the equation.

  • "Your parents’ house is not your house; only your investments are your investments." Partially true. If my parents need money in the future, I will be helping them, that's for sure. Once more, this is debatable, but their pension can be viewed as an investment into a state (it is not, I know it's a subsidy, but still). This needs to be considered from a risk perspective.

*This is approximate, I also hold MSCI World Small Cap, with stocks from developed countries (e.g., 60% USA) that I have integrated into the percentages.

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    Why do you equate living in a region with investing in businesses in that region?
    – Simon B
    Oct 15, 2023 at 20:51
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    Payments/income are not investments. Your parents’ house is not your house; only your investments are your investments. (They might decide to donate the house to charity, or something.)
    – RonJohn
    Oct 16, 2023 at 5:28
  • @SimonB For the record, I don't equate them, I simply wonder (hence the question) whether my family and me are overinvested in Europe. And whether I should take it into account when considering my portfolio.
    – D1X
    Oct 16, 2023 at 9:18
  • @RonJohn "Payments/income are not investments" An interesting debate... In my opinion, they are. I invested in a career, which yields dividends (a salary), which is to be considered into the equation. "Your parents’ house is not your house; only your investments are your investments." Partially true. If my parents need money in the future, I will be helping them, that's for sure. Once more, this is debatable, but their pension can be viewed as an investment into a state (it is not, I know it's a subsidy, but still). This needs to be considered from a risk perspective.
    – D1X
    Oct 16, 2023 at 9:27
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    @DIX not debatable at all, since you're not invested in education anymore and your parents' investments and pensions are your parents investments and pensions.
    – RonJohn
    Oct 16, 2023 at 14:34

3 Answers 3

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Of the stock allocation, 25% is in Europe. The rest is, currently: 45% North America, 15% Developed Asia, 15% emerging markets

Recently, I have been thinking about completely selling this ETF and specifically skipping the Europe allocation, at least in stocks (FTSE Developed Europe). The reason is quite simple: I feel, due to my situation, that I am over-invested in the EU: I will work in the EU, receive my payments in Euros, my parents have a home in a European country, receive their payments from a European government, and so on...

Does this sound sensible to you?

I think you are on the right track with your question.

The frequent advice is that your employer stock shouldn't be the main investment in your retirement funds. That puts too much at risk if the company turns into the next big failure. You can lose your job and your retirement funds.

Of course the same advice suggests that we diversify. And for many Americans we invest in S&P500 funds that are heavily US based companies. That doesn't freak many people out, but does put Americans in a similar situation that prompts your question: US based stocks, Social security, and 401(k)/IRA laws.

While I wouldn't say avoiding European stock completely is the way to go, I can see where you may want to rethink your allocation as your financial situation has changed and will change.

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    This is completely backwards. OP only has 25% in Europe. He should have 75% or more in Europe (unless he completely doesn't trust European stability but trusts NA and Asian stability).
    – RonJohn
    Oct 16, 2023 at 14:36
  • @RonJohn In this and your other comments to this question you give statements but no actual reason. "It is completely backwards" Why? "He should have 75% or more in Europe" On what grounds?
    – D1X
    Oct 18, 2023 at 14:04
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    @D1X "On what grounds?" You're a European who likes Europe and trusts Europe.
    – RonJohn
    Oct 19, 2023 at 13:28
  • @d1x You are looking at the 'asset side' of your diversification, but have forgotten about the 'liability side'. The fact that your personal expenses are projected to continue in Europe is a natural hedge / offset to the fact that your personal income is projected to continue in Europe. Simplistically, as I believe Ron was implying, investing only 25% in Europe while living there, creates a risk gap where relative underperformance of eg. the US economy will not prepare you for a strong European economy [implying higher prices etc. in Europe]. Nov 2, 2023 at 18:22
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Maybe that's the Wrong Question

You're asking if you need to diversify further.

Maybe, rather, you should ask "What do I think the EU will look like in 10 years?" (20, 30, etc)

Do you think it will be less stable than today? Less economically prosperous? More?

You can think of this as similar to the "Would I buy this stock at it's current price?" thought exercise. "Would I bet that Europe is going to have a good run in the next generation?"

Don't diversify for the sake of diversification. Diversify to address actual risk. To do that, first you need to attempt to quantify your risk.

Edit

@quarague made a great comment, which is that this assessment is relative. If you think there will be a global decline over the long term (for whatever reason) but you think Europe will decline less than other regions, then Europe remains a good investment.

Again, the point being that you should invest / disinvest in European stocks based on how you think Europe will perform compared to other geo-regions, rather than a vague sense of "diversification."

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  • Note that your questions should all be asked relative to the rest of the world not in the absolute sense as you wrote them. If you believe Europe will be doing well but other regions are doing even better invest elsewhere. If you believe Europe will do poorly but the rest of the world will be even worse stick to Europe.
    – quarague
    Oct 18, 2023 at 12:46
  • This advice is aimed at someone who is attempting to actively manage their portfolio via fundamental analysis. Realistically most people do not [and probably should not] attempt to actively engage on forecasting of whether a particular investment will 'beat the market'. The question seems to come from a place of wanting general diversification, which contrary to your bolded point, is in fact solid advice for many people. Diversification for its own sake does have value, and does not require an assessment of 'where Europe will be in 10 years compared with the world' [good luck with that one]. Nov 2, 2023 at 18:18
  • @Grade'Eh'Bacon - OP is talking about completely eliminating Europe from their asset allocation because their job / home / family is in Europe. They currently have 75% of their asset allocation in places other than Europe. I would argue that a) this course of action reduces asset diversification by over-representing the rest of the world at the expense of Europe and b) only makes sense if they believe Europe will experience a decline compared to the rest of the world.
    – codeMonkey
    Nov 2, 2023 at 18:40
  • @Grade'Eh'Bacon - and for what it's worth, I'm invested in a bunch of index funds and one stock that I bought on a lark around its IPO ~15 years ago. I think diversification is good. I'm just think OP's proposed course of action is, in effect, actively managing his investments (to avoid Europe). And as such, the management decisions should be based on something concrete (assessment of Europe's potential) as opposed to vague (for the sake of "diversification").
    – codeMonkey
    Nov 2, 2023 at 18:48
  • @codeMonkey Completely agree - ie: I think the OP is incorrect, but the nature of their question shows that their level of sophistication is not high enough where they should be engaging in active trading. Again - diversification is in itself a goal [although I agree the OP is incorrect about how to do that]. As I state in another comment - since OP's expenses are also in Europe, there is a simple 'natural hedge' between assets and expenses that exists if their investments are in their home currency / home economy. Nov 2, 2023 at 18:48
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Does this sound sensible to you?

No. Your decision on whether or not to invest in companies based in the EU should depend on how you think EU busunesses will perform financially over the next few years.

Where you live or work makes no difference to that. Though investing locally will reduce the effects of currency fluctuations (which could be positive or nagative).

What's your take on skipping bonds from EU governments altogether as well?

No, for the same reason. Invest in bonds that you think are going to be safe. Avoid ones that you think are too risky.

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    Diversification is done because we don't know how different businesses will perform in the future...
    – D1X
    Oct 18, 2023 at 14:07
  • @D1X True. But you don't diversify by refusing to invest in anything that's within one of the major World economic blocs.
    – Simon B
    Oct 18, 2023 at 19:42

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