# One country or the world: home markets, currency and stagnation > Why one small home market is a concentrated bet, how it can go nowhere for 13 years while the world grows, and how much of a hryvnia investor's gain can come from the currency. - Course: [Long-Term Investing: Index Funds, Risk and Your Own Behavior](https://productovi.com/courses/long-term-investing.md) - Module: Why should one fund hold thousands of companies? - Lesson 11/32, ~21 min - Source: https://productovi.com/courses/long-term-investing/home-or-world ## The home market's case **Grace:** Mid-April at Zapas: you're the PM, and the launch is in November. A third of our beta users asked for a "home market" option. Ethan thinks it should be the default. **Ethan:** People trust what they know. Their own country's companies, their own news. And look at the first years: Tessaro Home beat Tessaro World! **Grace:** He's right about the first seven years. In real terms 100 dol. in the home index grew to 172.5, in the world index to 165.3. Now look at the rest of the 40 years. **100 dol. in real terms, Tessaro World vs Tessaro Home** | Year | Tessaro World | Tessaro Home | | --- | --- | --- | | 0 | 100 | 100 | | 1 | 122.6 | 116.3 | | 2 | 110.5 | 105.3 | | 3 | 122 | 129.2 | | 4 | 111.1 | 112.8 | | 5 | 127.4 | 112.3 | | 6 | 140.1 | 127.2 | | 7 | 165.3 | 172.5 | | 8 | 176.2 | 160.9 | | 9 | 203.6 | 184.7 | | 10 | 191.3 | 163 | | 11 | 197.2 | 172.1 | | 12 | 220 | 144.1 | | 13 | 240.9 | 156.3 | | 14 | 274.2 | 164 | | 15 | 274.7 | 156.1 | | 16 | 330.9 | 180.2 | | 17 | 413.8 | 175.7 | | 18 | 407.3 | 192.5 | | 19 | 405.3 | 175.7 | | 20 | 461.9 | 173.3 | | 21 | 350.8 | 124.8 | | 22 | 239.1 | 92.4 | | 23 | 297.7 | 117.3 | | 24 | 340.7 | 138 | | 25 | 379.7 | 129.2 | | 26 | 401.8 | 125.3 | | 27 | 381.6 | 130.7 | | 28 | 425.5 | 134.2 | | 29 | 461.3 | 146.2 | | 30 | 443.2 | 154 | | 31 | 524.9 | 175.6 | | 32 | 526.5 | 161 | | 33 | 655.1 | 164.5 | | 34 | 730 | 222.6 | | 35 | 647.7 | 227.3 | | 36 | 486.8 | 188.7 | | 37 | 476 | 161.2 | | 38 | 609.8 | 204.1 | | 39 | 784.2 | 280.6 | | 40 | 987.5 | 397.4 | *Growth of 100 dol. after inflation, synthetic years 0–40. Not a forecast.* **Dataset (CSV):** [100 dol. in real terms, Tessaro World vs Tessaro Home, years 0–40](https://productovi.com/datasets/long-term-investing/home-or-world/home_vs_world.csv) **Sofia:** The home line goes sideways for years. **Grace:** From the end of year 7 to the end of year 20 it barely moves: 172.5 to 173.3. Thirteen years of saving for almost nothing in real terms. Work out the change. > **Exercise:** In the chart, 100 dol. in Tessaro Home was worth 172.5 in real terms at the end of year 7 and 173.3 at the end of year 20. What was the total real change over those 13 years, in percent, to one decimal? ## Forty years side by side **Ethan:** But the home market had great years too. It swings more, so it must pay more over time. **Grace:** It swings more, 17.3% a year against 14.7% for the world. And it won 17 of the 40 years, so a home investor always has some recent proof. But over the whole 40 years it earned 3.5% real a year, the world 5.9%. **Sofia:** More swing, less return. **Grace:** In this history, yes. Swinging more is not a contract that pays you more. A single country's path depends on a few local industries, and here they had a flat stretch the world didn't. > **Exercise:** Because Tessaro Home swings more than Tessaro World (17.3% vs 14.7% a year), it also earned more over the 40 synthetic years. > **Exercise:** In the synthetic history, 100 dol. grew to 987 in real terms in Tessaro World and to 397 in Tessaro Home over 40 years. How many times more did the world investor end up with, to one decimal? ## The currency in the middle **Ethan:** OK, but for Ukrainians the world fund is in dollars. Isn't that a risk too? **Grace:** It is **currency risk**, and it cuts both ways. Take years 21–40. The world fund made 7.7% a year in dollars. If the hryvnia lost an illustrative 5% a year, the dollar went from 40 to 106.13 hryvnias. ![100,000 UAH in a dollar world fund grows to 1,171,797 UAH over 20 years at an illustrative 5% devaluation; 68.1% of the gain comes from the currency.](https://productovi.com/courses/long-term-investing/diagrams/m3-l3-currency-split.png) *An illustrative 5% a year, not a forecast.* **Grace:** So 100,000 UAH became 1,171,797 UAH, 13.1% a year in hryvnias. Without devaluation it would be 441,638. Most of that gain came from the currency, not the companies. **Sofia:** And if the hryvnia had held steady instead? **Grace:** Then the hryvnia gain would be 341,638, not 1,071,797. Devaluation isn't a return you can plan on; it's a risk that happened to pay. The opposite can happen too, which is why hryvnia goals keep a hryvnia part. > **Exercise:** 100,000 UAH in a dollar world fund grew to 1,171,797 UAH in 20 years with a 5% yearly devaluation; without devaluation it would be 441,638 UAH. What share of the hryvnia gain came from the currency, in percent, to one decimal? > **Exercise:** Which line fits Zapas's portfolio screen for a Ukrainian user? ## One more home bet: a flat **Sofia:** Many users say their real investment is a flat. Is that diversified? **Grace:** It's the most concentrated bet most families make: one building, one city, one currency, often with a loan. And you can't sell a tenth of it when you need cash. It may still be a fine home; it doesn't diversify anything. **Ethan:** My parents would argue with you about that for an hour. **Grace:** Many people would. The app shouldn't argue; it should show the trade-off and keep the default broad. > **Exercise:** A user says: "I own a flat to rent out, so I'm already diversified." What is the main problem with that? **Ethan:** Fine. Default is the world, home is an option with a warning. But users will still ask me why. > **Exercise:** A beta user asks: "Why does Zapas put my money into the whole world instead of our own market? I know our companies." In 2–3 sentences, reply with numbers from the synthetic history. > **Key ideas** > > - One country is a concentrated bet. In the synthetic Tessaro history the home market ended years 8–20 at +0.5% real while the world grew 179.4%. > - Home swung more (17.3% vs 14.7% a year) and earned less (3.5% vs 5.9% real a year): 100 dol. became 397 vs 987. > - **Home bias** feels safe because it's familiar; familiarity is not an edge. The global fund includes the home country at its share of the world. > - For a hryvnia saver, a dollar fund carries **currency risk**: with an illustrative 5% devaluation, 68.1% of the hryvnia gain came from the currency, which can disappear. > - A flat is concentrated and illiquid: one more home bet, not diversification. > **Educational, not advice** > > This course explains how long-term investing works; it never tells you what to buy. Investments can fall, and you can get back less than you put in. Check the current rules where you live or ask a licensed professional. **Grace:** Next: a real beta user who put everything into the home index and a theme fund. Time to decide what Zapas shows him. - Previous lesson: [A few big winners: why owning everything catches them](https://productovi.com/courses/long-term-investing/few-big-winners.md) - Next lesson: [Case: a user with everything in two bets](https://productovi.com/courses/long-term-investing/case-concentrated-user.md) --- Productovi Learning. Free, no sign-up needed to read.