Macro: Sandcastle economics
Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.
You can access both of our platforms from a single Saxo account.
What is home bias?
Investing 3 minutes to read
Saxo
The perils of being a stay-at-home investor
Home bias is the tendency of investors to invest more heavily in domestic equities while ignoring the potential of foreign equities in a well-balanced portfolio.
As well as the phenomenon that investors naturally feel more comfortable investing in companies that they’re familiar with, the refusal to stray outside their own comfort zone is historically rooted in pre-digital times when hurdles such as language differences, legal restrictions and high cross-border transaction costs made the process very challenging.
What makes this a problem?
Although regulatory alignment and clever digital solutions mean that investors no longer face these latter difficulties, home bias persists to an extraordinary degree.
Research by Charles Schwab in 2018 revealed that three out of four UK investors were interested in placing most of their assets in their home market, compared to those who were looking to invest significantly into the US (7%), Japan (5%) and China (2%). The low level of interest in foreign equities is even more astonishing given that most of the survey respondents expected overseas equity markets to advance by almost as much as stocks in the UK.
Now, consider the rates of return on major indices worldwide and the problem becomes clear. In 2020 the S&P 500 advanced 16%, the tech-heavy Nasdaq surged over 47% and in China, the CSI 300 rose around 27%. In the same period, the FTSE 100 in the UK dropped 14% whilst the STI fell close to 12%, trailing the others by quite a distance.
What to do?
Happily, this is a problem that investors can address in one word – diversification. So, if your investment strategy is based on a single sector, say, pharmaceuticals, read up on similar companies in other countries and the industry’s prospects more broadly. With a little practice, assets that once seemed too exotic to touch will become as familiar as those on your local stock exchange.
Explore our investment solutions
Go global, instantly
Take your investing global with our wide range of 3,000+ Exchange Traded Funds (ETFs) from over 30 exchanges around the world.
Expert portfolios, with one click
Kick-start your investing with SaxoSelect portfolios – just choose a portfolio with one click and let the experts take care of the rest.
Latest Market Insights
Quarterly Outlook 2024 Q3
Sandcastle economics
-
Bonds: What to do until inflation stabilises
Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain inflation and evolving monetary policies.
-
Equities: Are we blowing bubbles again
Explore key trends and opportunities in European equities and electrification theme as market dynamics echo 2021's rally.
-
FX: Risk-on currencies to surge against havens
Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperform in Q3 2024.
-
Commodities: Energy and grains in focus as metals pause
Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities in Q3 2024.