Equity home bias puzzle

You have 40 percent of the world's economic engine turning over there and you are allocating almost none of your capital to it.

And that gap, that space between the global market reality and what the individual investor actually owns is what we call home bias.

Home bias.

Break that down for us in plain terms.

It's a recognized behavioral finance phenomenon.

Adding VXUS at roughly 20, 30% of your total equity allocation gives you genuine global diversification.

But why intentionally underweight it relative to the global reality?

because of the psychological reality of home bias.

[upbeat music] Hi everyone, and welcome back to the Aussie Fire Pod.

We've got an exciting Q&A episode today, uh, with three questions from our wonderful listeners that cover a few topics, namely home bias if you're going to retire overseas, what to do when spouses don't necessarily agree on strategy, and other strategies when it comes to selling down your shares when you have multiple shares in terms of which share to sell.

Should be a really interesting episode, and we are obviously in-person today with Dave, which is super exciting.

So you're looking forward to having a dynamic duo episode today, Dave?

... perfectly pivoted us to the first question-

[laughs]

... which is retiring overseas, and specifically what to do with home bias.

Yeah.

I think that's really interesting.

A- and one I'd like to bring up just because the majority of our, our listeners are US-based, um, how do you factor in or when you think about the American perspective, there's a lot of home bias for every investor wherever they're living usually, uh, but especially the Americans, right? It's one of the most developed markets in the world, one of the large- largest markets in the world in terms of, um, listed, also market capitalization How do you factor in home bias of being over-concentrated in the US markets? I mean, um, we touched on this a little bit with, you know, McDonald's and, and, uh, maybe Coca-Cola or whatever.

Not that these companies should be invested in.

[chuckles] This is always you have to do your research.

I would say no matter if you're in Hong Kong or in Zurich or in Geneva, I would say overall speaking, there are actually, there are more similarities than the differences that I've seen.

Why I said so is because, you know, one thing is what we call in finance is home bias.

So people are like that, you know, as well.

You know, it just like reflect differently when you are in different places.

During downtime, people are scared, you know, things might to get worse.

There's no perfect, you know, moment.

Just start now with a really simple strategy, having a global mindset instead of being home biased.

And, you know, you've lived the expat life across China, Hong Kong, Singapore, Europe.