In Perspectives

The tendency to invest disproportionately in your own country is known as home country bias and is a common inclination for investors all around the world. Note: this tendency is referred to as a bias for a reason – it can lead investors to make decisions that are in conflict with fundamentals. It is easy to understand how this bias occurs as it’s natural to be more familiar and comfortable with market conditions, political issues and public companies in your own home country.

It’s especially easy to fall prey to this bias as an American investor. After all, the U.S. economy is the largest in the world, and the S&P 500 Index is quoted and referred to so often in the media that it is seen by many U.S. investors as their default benchmark despite the fact that it represents less than half of the available investment universe worldwide.  The inherent danger in this bias is that many investors that have a strong preference toward domestic investments often mistakenly believe that by doing so, they are taking less risk in their portfolio. Although it is counterintuitive, the opposite tends to be true due to reduced diversification, which can lead to higher volatility and lower returns.

Home country bias can have real opportunity costs as well. Markets have shown us that U.S. equities experience periods of underperformance that can last for years at a time, as we most recently experienced from 2002-2007 when international equities outperformed substantially. Investors that limit their opportunity set to domestic securities could be passing up the chance to invest in markets that are more attractively valued and have better growth prospects.

Current market conditions make this a critical issue for today’s investors. Domestic equities have turned in exceptionally strong returns and have outperformed international markets three out of the last four years. Many individual investors seem to have viewed this recent trend as confirmation of the soundness of their home country bias and have reacted by pouring even more money into domestic investments. In contrast, many professional investment managers including Legacy Trust believe that the substantial run-up in prices has led U.S. equities to appear broadly overvalued, and find more attractive fundamentals in international stocks. Emerging market equities in particular appear to be reasonably priced, and easing monetary policy combined with lower energy costs are creating an attractive environment for economic growth in many countries.

One of the key responsibilities of a professional wealth manager is to help clients recognize that behavioral biases exist, and it is important to be aware of them when considering investment options. Ultimately, the size and strength of the U.S. economy is such that an unbiased, fundamentally driven asset allocation analysis may well recommend investing the biggest portion of your assets at home – as long as you’re open to seizing opportunities when they exist overseas as well.  Your portfolio will be better off in the long run.

Legacy Trust and Your Right to Financial Privacy

At Legacy Trust we have established policies and practices that respect the financial privacy of all individuals who use our trust company. We believe it is critical to comply with the laws and regulations designed to secure your financial privacy. Your relationship with us as our client is very important to us, and we want you to understand our policies and practices about handling your information.

This Policy applies to you – This Policy applies to our relationships with individual clients who inquire about or obtain products or services from us for personal, family and household purposes.

Strict security measures – We take the security of information very seriously. We have established security standards and procedures to prevent access to client information. We maintain physical, electronic and procedural safeguards to guard client information.

Limited employee access – We have established procedures to limit employee access to information to only those employees with a business reason for accessing such information. We educate our employees about the importance of confidentiality and client privacy. We take appropriate disciplinary measures to enforce employee responsibilities regarding client information.

Why we collect information – We collect information about you to:

  • accurately identify you;
  • protect and administer your records, accounts and funds;
  • help us design or improve our products and services;
  • understand your financial needs;
  • save you time when you apply for new products and services; offer you quality products and services; and comply with certain laws and regulations;

We collect information – We collect and maintain your personal information so that we can provide investment management and other services to you. The types and categories of information that we collect and maintain about you include:

  • Information we receive from you to open an account or provide investment advice or other services to you (such as your home address, social security number, telephone, financial information and investment objectives).
  • Information that we generate to service your account or from our transactions with you (such as account statements and other financial information).
  • Information on your transactions with nonaffiliated third parties.

We have established procedures so that the financial information we collect is accurate, current and complete. We are committed to work with you to promptly correct any inaccurate information.

Our selective sharing of information – In order for us to provide investment management and other services to you, we do disclose your personal information in very limited instances, which include:

  • Disclosures to nonaffiliated companies as permitted by law, including those who help us service your account (such as providing account information to brokers and custodians).
  • Other limited disclosures as permitted by law, for example, required reports to government entities.

We do not share your information with third parties for marketing purposes. We do not sell your information.

Former clients – If you end your relationship with us, we will continue to adhere to the privacy policies and practices described in this notice.

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USA PATRIOT Act

Important Information About Procedures For Opening A New Account

To help the government fight the funding of terrorism and money laundering activities, Federal law requires all financial institutions to obtain, verify and record information that identifies each person who opens an account.

What this means for you: When you open an account, we will ask for your name, address, date of birth and other information that will allow us to identify you. We may also ask to see your driver’s license or other identifying documents.

We apologize for any inconvenience this may cause; however, federal law prohibits us from waiving these requirements.

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