Much attention is given to the powerful bias that many Australian investors hold for Australian investments, particularly our shares.
This home bias is, of course, not uniquely Australian. It is widely shared with investors in other developed countries including the US, UK, Canada and Japan.
American investors tend to favour American shares while Japanese investors often favour Japanese shares and so forth. Home-bias investing is truly a global phenomenon.
However, Australian investors’ strong tilt to local shares is particularly marked given that our local market accounts for such a small percentage of the global market.
Under-diversification has been described as one of the most-prevalent bad habits of investors; a critical concern because of the dominant influence that appropriate diversification has on long-term returns. And home-bias investing ranks among the biggest forms of under-diversification.
Recent Vanguard research* on home-bias investing found that:
-
Australia: Australian shares accounted for just 2.4 per cent of the global share market in December 2014 yet Australians collectively held 66.5 per cent of their portfolios in Australian shares.
-
Canada: Canadian shares made up 3.4 per of the global share market yet Canadians collectively held 59 per cent of their portfolios in Canadian shares.
-
Japan: Japanese shares accounted for 7.2 per cent of the global share market yet Japanese investors collectively held 55.2 per cent of their share portfolios in Japanese shares.
-
UK: While UK shares made up 7.2 per cent of the global share market, its investors collectively held 26.3 per cent of their portfolios in UK shares.
-
US: While US shares accounted for 50.9 per cent of the global share market, American investors collectively held 79.1 per cent of their portfolios in US shares.
If investors choose to invest in the global market regardless of their home country, Australian investors would hold almost 98 per cent of their share portfolio not in Australian shares. Just think about it in regards to your own portfolio.
Investors with an excessive home bias are not adequately spreading their risks and opportunities. They are potentially paying a high price for the perceived comfort of restricting much of their investing to our home shores.
* The global case for strategic asset allocation and an examination of home bias, published by Vanguard, February 2017.
For further information or assistance please contact us on |PHONE | .
Source : Vanguard 11 September 2017
Written by Robin Bowerman, Head of Market Strategy and Communications at Vanguard.
Reproduced with permission of Vanguard Investments Australia Ltd
Vanguard Investments Australia Ltd (ABN 72 072 881 086 / AFS Licence 227263) is the product issuer. We have not taken yours and your clients’ circumstances into account when preparing this material so it may not be applicable to the particular situation you are considering. You should consider your circumstances and our Product Disclosure Statement (PDS) or Prospectus before making any investment decision. You can access our PDS or Prospectus online or by calling us. This material was prepared in good faith and we accept no liability for any errors or omissions. Past performance is not an indication of future performance.
© 2017 Vanguard Investments Australia Ltd. All rights reserved.
Important: Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business, nor our Licensee take any responsibility for their action or any service they provide. Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.