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Hey everyone,
I’m a 21-year-old investor with around $30k invested in the S&P 500. I’m very numbers-oriented and enjoy thinking about markets from a math / modeling perspective, and I want to better understand how assets are actually priced in practice, especially in the US market so I can make better long-term decisions.
Recently, I’ve seen many people argue that investors should shift away from a US-only ETF and instead buy global or world ETFs, mainly because the S&P 500’s strong returns over the past decade are not guaranteed to continue. That makes sense to me historically and statistically.
However, under the assumption of reasonably efficient markets, wouldn’t the risk of future S&P 500 underperformance already be priced in? If the market broadly expects lower future returns, shouldn’t that expectation already be reflected in current prices and valuations?
This leads to my main question:
Is the US market actually less risky, not because returns are higher, but because prices are more “accurate”?
My intuition is that the US market may be safer in the sense that:
• There are vastly more analysts, institutional investors, and quantitative models analyzing US stocks
• Information is more transparent, timely, and widely disseminated
• Mispricings should be smaller and corrected faster
Because of this, when buying a US stock or an S&P 500 ETF, it feels like I can be relatively confident that the price already reflects its true risk/reward tradeoff.
In contrast, when investing in emerging or less-developed markets, it feels much harder to know whether prices are actually fair at all due to weaker information, fewer analysts, governance risks, and structural inefficiencies.
That said, I’m aware this line of thinking is probably flawed or incomplete. I’d like to understand more clearly:
• What risks I am actually taking by concentrating in the US versus diversifying globally
• Whether higher market efficiency truly reduces risk, or just changes the type of risk
• And whether global diversification is mainly about reducing unknown unknowns rather than improving expected returns