Saturday, May 18th, 2024

Home country bias explained

December 23, 2013 by  
Filed under Investing, Investor Behaviour

Home country bias occurs when you make investment decisions based on what is familiar and close to you rather than on an objective and complete understanding of opportunities.  Canadians are extremely prone to this tendency because Canadian investment opportunities (though some may be excellent) make up only about 4% of the world market.  Thus, an investment in Canada is a deliberate avoidance of 96% of the opportunities available to you.  Our friends to the south in the United States, are better off because their home market makes up over 40% of the world market, so they tend to have better diversification by default.

If you have hired professional investment management such as a team that handles a mutual fund, would you ever want them to ignore 96% of the investment opportunities available?

Franklin Templeton Investments has produced a very catchy two minute video to explain this concept. I highly recommend you take a look.

Comments are closed.