Home bias is chosen by not choosing

These are listed in the order worth acting on, which with home country bias is not the order they are usually presented in.

The pattern

Investors in almost every country hold a share of their domestic market far above that market's weight in global indices. The pattern is consistent enough across countries to count as one of the more robust findings in the field.

It has persisted despite decades of falling costs for international investing, which is why explanations based on access are incomplete. Default fund choices, workplace schemes and locally marketed products all reinforce it without anybody deciding anything at all. The result is a concentration that most holders would not have selected had they been asked the question directly.

Why it happens

Familiarity is the largest driver, because domestic companies are recognisable and their news is reported in the local press. Familiarity feels like information, even though recognising a company name conveys nothing whatsoever about its future returns. Regulatory and platform defaults matter too, since the easiest fund to buy is frequently a domestic one.

Currency comfort plays a part, as people prefer holdings priced and reported in the money they actually spend. None of these is a reason about expected returns, which is the genuinely striking part of the whole pattern.

The arguments that do hold

Your liabilities are in your home currency, and matching some assets to them reduces exchange rate risk on money you will spend. Domestic holdings are treated more favourably in some tax and pension systems, though this is entirely jurisdictional and changes. Costs of accessing domestic markets are sometimes lower, particularly in countries with well-developed local fund industries.

For most people, these are genuine arguments for some home tilt rather than for the size of the tilt most portfolios actually carry. The right amount is a judgement, and anybody quoting a precise correct figure is expressing a preference.

What the concentration costs

A domestic market is a set of industries shaped by one economy, and it may be dominated by a mere handful of sectors. That concentration is invisible while the domestic market performs well and becomes extremely visible when it does not.

Your employment income is already tied to the same economy, which compounds the exposure rather than diversifying anything. Property, if you own it, is tied to that same economy too, usually as the largest single asset you hold. Adding a domestic-heavy portfolio on top means most of your balance sheet depends on one country's conditions.

Looking at your own tilt

Add up the geographic exposure of every holding, using the fund fact sheets rather than the names on the funds. Compare the domestic share against that market's weight in a global index, which is published and straightforward to find.

On an ordinary week, the gap is your home bias, and seeing it as a single number is usually more informative than any argument about it. Then ask whether you would deliberately choose that number if you were starting from nothing today. If the answer is no, the adjustment can be made gradually through where new contributions go rather than by selling.

Adjust the size of it until it is something you would actually do tired.

Deciding on purpose

A deliberate home tilt with a stated reason is a legitimate position and behaves far better than an accidental one. Write the reason into the plan, because a tilt without one gets revisited every time the domestic market underperforms. Global funds neutralise the question entirely by holding markets at their index weights, which is a defensible default.

Put simply, whatever you choose, the aim is that the number results from a decision rather than being the residue of several defaults. Anything involving cross-border tax or residence questions is a matter for regulated advice in your own country.

Everything above, in order of what to do first

1. The pattern. Investors in almost every country hold a share of their domestic market far above that market's weight in global indices.
2. Why it happens. Familiarity is the largest driver, because domestic companies are recognisable and their news is reported in the local press.
3. The arguments that do hold. Your liabilities are in your home currency, and matching some assets to them reduces exchange rate risk on money you will spend.
4. What the concentration costs. A domestic market is a set of industries shaped by one economy, and it may be dominated by a mere handful of sectors.
5. Looking at your own tilt. Add up the geographic exposure of every holding, using the fund fact sheets rather than the names on the funds.
6. Deciding on purpose. A deliberate home tilt with a stated reason is a legitimate position and behaves far better than an accidental one.

The takeaway

Whatever tilt you hold, hold it on purpose. An accidental concentration is the one you find out about at the worst time.

Small and repeatable beats ambitious and abandoned, almost every time.