Leaving home - from Jim Parker's "In the flags" series.


In my book, "Legal Tender," I talk about various biases that can negatively impact our ability to make financial decisions with dispassionate clarity. In this article, Jim Parker talks about the home bias. What I refer to in my book as familiarity bias. He talks about how our focus on local, familiar investments can skew our portfolios. Read the first couple of paragraphs and if it compels you, down the PDF to complete the story. 

Everybody loves the comforts of home, but investors who become too anchored to familiar territory can end up with a very narrow view of the world.

Home bias, the tendency of investors to allocate a disproportionate amount of their funds to their domestic market, is a well-documented phenomenon. As at 31 December 2016, superannuation funds regulated by the Australian Prudential Regulation Authority had nearly 50% of their total equity exposure in local shares. For self-managed super funds, the average home allocation was 72%. There can be rational reasons for home bias... 

Download the rest of the article here