Learn about the dangers of Home Bias, or making investments based on companies that are very familiar to you. In other words, there’s such a thing as “too close to home.” Find out how you can avoid this common mistake.

If you live in the Southern Tier of New York state, you probably own a few shares of Corning, Inc. Either you work for the company, have worked for it in the past, or you just want to invest in local businesses you are familiar with—a behavior economists call Home Bias. 

Keep in mind, home bias can have a big impact on your investment strategy. Often people with a strong home bias will invest more in companies with which they have a personal experience or a sense of loyalty. It’s a bit like supporting your local sports team. 

Unfortunately, home bias can also overexpose your portfolio to one area, thereby limiting its diversification. In this blog, I talk a lot about the importance of diversification. It’s one of the best ways to help reduce your risk and still participate in the growth of the market. A diversified portfolio, filled with domestic and international stocks across multiple sectors, can bring you greater success over the long haul.

But what if you are already overexposed to Corning, Inc. and put all (or most) of your eggs in one basket? I want to caution you. Even though Corning, Inc. the company positively impacts our region, supporting everything from schools and museums to golf courses and restaurants, as a stock its track record hasn’t been so stellar.   

To explain, let’s look at a few graphs together. The images below compare Corning, Inc. stock performance to the S&P 500 with 1-, 5-, 10-, 20-, and 42-year intervals. Unfortunately, Corning stock underperforms the S&P 500 every time—no matter the time period.  

1 Year

5 Year

10 Year

20 Year

42 Year

I’m not trying to pick on Corning, Inc., but the truth is, it’s very difficult to beat the market over the long run. Not convinced yet? Check out SPIVA, which measures actively managed funds against their index benchmarks worldwide.

So, what can you do to diversify your portfolio?

It’s okay to hold some individual Corning, Inc. shares, especially when it’s your employer. Just don’t let Corning stock become an outsized portion of your portfolio. Diversification is critical; it’s the better, risk-adjusted approach to investing in the long term. Here are a few ways to diversify:

• Spread your investments across various assets. It’s wise to have a mix of financial assets in your portfolio, including stocks, bonds, real estate, private companies, and some cash.
• Invest in a range of sectors. Explore investing in all types of companies such as energy, retail, technology, healthcare, finance, and more.
• Stay geographically diverse. Invest in stock from both domestic and international companies. This can help protect against risks in one specific country or region.
  
• Choose varying market capitalizations. Make sure you have large-cap, mid-cap, and small-cap companies in your stock portfolio. This can help balance stocks that are more stable with ones that have high growth potential.

The bottom line: It’s important to support local businesses, but not at the expense of your financial portfolio. Take a look at how you’ve organized your assets and make sure you’re putting your eggs across a range of baskets. It’ll pay off in the end. 

Lake Road Advisors, a Fee-Only, independent financial planning firm with offices in Corning, NY, Ithaca, NY and Portland, OR works with clients virtually all across the country. Paul Sydlansky, the founder of Lake Road Advisors LLC, has worked in the financial services industry for 20+ years. Prior to founding Lake Road Advisors, Paul worked at Morgan Stanley in Manhattan for 13 years. While at Morgan Stanley, Paul was a senior-level manager within the Institutional Equities Department. In 2018 he was named to Investopedia’s Top 100 Financial Advisors list. Paul received a Bachelor’s degree in Economics from Marist College and holds an MBA from New York University Leonard N. Stern School of Business. Paul is a CERTIFIED FINANCIAL PLANNER™ and a member of the National Association of Personal Financial Advisors (NAPFA) and the XY Planning Network. They can be reached by phone at the Corning, NY office at (607) 438-2914, Ithaca, NY office at (607) 463-8400, or Portland, OR office at (607) 292-2172 or at the firm’s website at https://lakeroadadvisors.com/

The information provided is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon. You should consult your attorney or tax advisor.