Do you have a home bias in your portfolio?

R

Rebecca

Member
A recent comment in another thread piqued my curiosity about why exactly some people have a home bias in their investment portfolios.

My investment strategy is quite simple:
VT and Chill

VT is my opinion the most logical long-term investment. It has rock bottom fees (0.06%) and is extremely diverse because it consists of shares in over 10,000 companies in dozens of countries and tracks the FTSE Global All Cap Index. As it is global it does not rely on the economic performance of one nation or region.

Currently VT is quite US dominant (62%) but it is likely that percentage will decrease over time as the equity markets in other countries improve. That is the beauty of an index fund: it is self-cleansing and adjusts over time to current market allocations.

JL Collins is known for advising US investors to invest in VTSAX (US only index fund). Yet even JL Collins changed his mind this year and now advises that everyone invest in VT or a similar global index fund.

I happen to be a US citizen so technically I have a strong home bias with VT. However, I view nationality as an accident of birth or heritage. I don't mind if the percentage of US stocks in VT decreases.

Do some people maintain a home bias because they feel obligated to invest in their home country due to patriotism? I don't really understand this but I also view nations as arbitrary and artificial entities created by drawing invisible lines on a map.

I do not think people need to maintain a home bias because most people live in their home countries and are already supporting their local economies in multiple ways:
1. Taxes
2. Pension contributions (which are often invested locally)
2. Patronizing local businesses
3. Contributing efforts and energy via employment at local businesses

Aren't these involuntary and voluntary contributions sufficient? How much obligation does a person really have to further support their nation?

Do you have a home bias in your portfolio? If so, why do you maintain the home bias?
 
Hi

Thanks for the interesting discussion.

I do have a home bias, but I don't see it as a contribution to my country at all.

For me, there are two advantages to a home bias for a Swiss investor, but it is not necessary:
1. It is priced in CHF, so it protects (to some degree, of course) against USD/CHF devaluation
2. It protects against an event in the world that would not impact the local market. In a global economy, this becomes less and less interesting.
 
Rebecca said:
VT is my opinion the most logical long-term investment. It has rock bottom fees (0.06%) and is extremely diverse because it consists of shares in over 10,000 companies in dozens of countries and tracks the FTSE Global All Cap Index.
Click to expand...

It's not that diverse.

Top 100 companies make 58.4% of the fund
Top 10 companies make more than 20% of the fund. It is still a highly concentrated fund.

IMO Swiss home bias also is a diversifier - it's not tech companies, but still across multiple industries. It dilutes a bit the tech over-exposure of VT.
 
Interesting discussion indeed!

So far I have never questioned my home bias (currently around 18%), just seen it as reasonable asset allocation. But this has probably reduced my performance.
It would be great to have some numbers. Would it be possible to make a simulation for the last 50-100 years of the expected returns with 20% home bias and with no home bias? This would of course have to include USD/CHF devaluation.

Rebecca said:
is extremely diverse because it consists of shares in over 10,000 companies in dozens of countries and tracks the FTSE Global All Cap Index.
Click to expand...
I agree with @Ex Pat that the goal of VT and the underlying index is not to be diverse but to represent market cap. But that might be a discussion for a separate thread.
 
gaijin said:
It would be great to have some numbers. Would it be possible to make a simulation for the last 50-100 years of the expected returns with 20% home bias and with no home bias? This would of course have to include USD/CHF devaluation.
Click to expand...
I have close to 100 years of data available in the advanced FIRE calculator.

However, this includes very weird events for the USD/CHF valuations, which makes it difficult to trust for future planning.
 
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