Definition
Home Bias
Home bias is the tendency of investors to overweight assets from their own country, sector or even employer, neglecting the diversification benefits of going wider.
Indian investors often hold almost entirely domestic equities, real estate and fixed deposits, with little global exposure, partly from familiarity and partly from currency and tax friction. The result is a portfolio heavily exposed to a single economy and currency, and missing world-leading companies and sectors not well represented at home.
A milder version is concentrating in one's own city's property or one's employer's stock — comfortable but risky. Adding global funds or international index exposure, within tax rules, diversifies your wealth across economies and reduces dependence on the fortunes of any one market.
Related terms
- Asset AllocationAsset allocation is the decision of how to divide your portfolio among major asset classes — such as equity, debt, gold and cash — based on your goals, horizon and risk tolerance.
- Behavioral FinanceBehavioral finance is the field that studies how psychology and cognitive biases affect the financial decisions of investors and markets, departing from the assumption of perfectly rational actors.
- DiversificationDiversification is spreading investments across different assets, sectors and geographies so that poor performance in one does not sink your whole portfolio.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.