Glossary / Behaviour

Home bias

Home bias is the tendency to hold far more of one's own country's assets than its share of the world market justifies, driven by familiarity rather than by analysis.

For an investor whose salary, property and currency are already concentrated in one place, a portfolio tilted the same way multiplies a single exposure rather than diversifying it.

For expatriates the question is sharper still: home is not obviously the country of birth, the country of residence, or the currency of the salary.

Where people get it wrong

Applying a standard home bias tilt without asking which country is home. The advice assumes a resident with a matching pension and currency, which an expatriate rarely is.

The framework behind it The three fund portfolio, and why it breaks for expatriates sets out the rule, the arithmetic and where it breaks.

Read the framework

Related terms

Correlation Correlation measures how two assets move relative to each other on a scale from minus one to plus one, and diversification only works to the extent that the correlation between holdings is below one. Rebalancing Rebalancing is selling assets that have grown beyond their target weight and buying those that have fallen below it, restoring a portfolio to its intended allocation. Index fund An index fund is a fund that holds the constituents of a published index in their published weights rather than selecting them, which removes manager judgement and most of the cost that comes with it.

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