As the saying goes, there’s no place like home. Right? Well, although we all love to come home after being away for some time, when it comes to investing, sometimes we spend too much time at home, and our investment portfolios might hurt as a result.
According to analysis provided by Stansberry Churchouse Research, although there are many good reasons to invest in your home and local markets — familiarity probably being the greatest reason — it also leaves investors susceptible to something called home-country bias. The data tends to speak for itself.
A home-country bias
Specifically, and according to numbers compiled by J.P. Morgan, North American institutional investors have 75 percent of their assets allocated in, you guessed it, North America. And the trend is the same globally, too. In Asia, 85 percent of investors have their assets allocated in, yes, Asia, and in Europe, it’s 61 percent who invest in their local continent.
And it’s not just institutional investors that are making this potential mistake, either. With data also compiled by Stansberry Churchouse, individual investors also appear to be guilty of exhibiting this home-country bias.
As an example, the average American investor has 75 percent of their money invested in U.S.-listed stocks, despite the fact that American stocks only account for 51 percent of total global market capitalization. In other words, one interpretation of these numbers is that American investors are too heavily invested (forgive the pun) in their domestic market while overlooking clear opportunities overseas.
This same trend can be seen in Japan, the U.K., Japan, Australia and Singapore. Around the world, investors are showing a bias towards domestic markets while neglecting formidable value across international boundaries.
Get out of your comfort zone
So, how does an investor address this potential home bias? Well, in one way, the answer is simple, but it also involves some complexity, too. Specifically, find more international markets to invest in. However, this also involves the need to monitor one’s portfolio more closely, since different markets are, by definition, susceptible to different trends. Keeping tabs on it all might take more effort.
Which is why it can never hurt to obtain the services of a professional investment firm, especially one that specializes in global opportunities. Clearly, by sticking only to one’s home market, international opportunities are being overlooked. Yet, as more markets are invested in, the more research, knowledge and experience might be necessary. Professionals with expertise in other markets can help facilitate the experience, as well as increase your portfolio’s returns.
ASCEND GRP is an asset-management firm, with offices in Toronto, Richmond Hill, and New York, that services clients seeking investment opportunities worldwide.