Building a portfolio
Home bias
The tendency to hold far more of your own country’s market than its share of the world warrants.
How it works
Investors everywhere overweight home. It is driven by familiarity, currency matching, tax wrappers, and simple availability rather than by analysis.
It has real consequences. A domestic-only portfolio in a country that is a small share of global markets is a large concentrated bet on one economy, one currency and one set of policies.
Where it misleads people
Some home bias is rational — your liabilities are in your home currency. The question is whether the size of the tilt was chosen or inherited, and it is almost always inherited.
Related terms
- DiversificationSpreading money across things that do not move together, so no single failure can decide your outcome.
- Currency riskThe risk that exchange-rate moves change your return on a foreign holding.
- Concentration riskThe risk that too much of your outcome depends on one holding, sector, country or currency.
- IndexA rules-based list of securities used to represent a market or segment of one.
More in Building a portfolio
- Investment policy statement
- Glide path
- Modern portfolio theory
- Fund overlap
- Rebalancing
- Efficient frontier
- Rebalancing band
- Effective number of holdings
All 20 Building a portfolio terms · The full glossary, 433 terms
Educational reference only. Nothing here is investment advice or a recommendation to buy or sell anything, and tax treatment depends on your own circumstances and the country you are in.