We suffer from a chronic case
of home country bias, and in the process we may miss a lot of chances to potentially improve the risk / return in portfolios.
It emphasizes foreign equity exposure, observing that, at 57 per cent domestic exposure, Canadians are behind only Australians in having the worst level
of home country bias in their portfolios — despite the fact Canada makes up only about 3.5 per cent of global stock market capitalization.
Still, for a given level
of home country bias, increased corporate income tax in that home country is likely to decrease the level of investment in that country.
Not exact matches
So do the increase in the mobility
of saving and investment; the increase in the desired exposure to foreign assets (the reduction in
home bias); the financial market innovation that allows for better diversification and risk sharing; and the differentials in the pace
of technology adoption or workplace practices that give rise to varying productivity trends across
countries.
I have about 22 %
of my portfolio with international exposure, but I think Canadians have even more
bias towards
home country (especially with the preferential dividend tax treatment that Canadian dividend paying stocks get).
I can't think
of anything that I've done an about face on, but one thing I am sticking with is my conviction to minimize the
home country bias.
There may be a bit
of home -
country bias in the advice about holding a third
of your equity portfolio in Canadian stocks.
This 50/50 diversification reflects a world
of opportunities and overcomes a common «
home country bias» we all have for what's familiar.
This so - called «
home country bias» starts from the moment most
of us begin to invest.
One
of the reasons investors tend to invest most
of their money at
home (
home country bias) is because they feel comfortable with their knowledge
of the political climate.
That «
home country bias» reflects their preference for familiar company names, but also the regulatory protections
of Canadian and U.S. stock markets.
I have about 22 %
of my portfolio with international exposure, but I think Canadians have even more
bias towards
home country (especially with the preferential dividend tax treatment that Canadian dividend paying stocks get).
Home country bias is something to mindful
of in Canada for the reason you mentioned (3 %
of world market cap, and our market is not well diversified)-- and there is another big reason for it as well: taxes.
Many Canadians also fall prey to the risk
of home -
country bias, says Kirzner.
I don't understand languages, cultures, economies and markets around the world in the same way that I do in my
home country — but I recognize this as a personal
bias, not necessarily reflective
of the data.
Canadian - centric investors suffering from
home country bias and convinced tech is the future might want to add some global ETFs or some
of the technology - focused ETFs mentioned above.