How much of my portfolio should be domestic?

A common approach is market-cap weighting globally (roughly 55–60% US, 40–45% international today). Some investors keep 10–30% home tilt for currency needs, but large overweights increase concentration risk.

Does currency hedging remove home bias?

No. Hedging manages currency volatility but does not reduce country/sector concentration. Home bias is about overweighting domestic equities relative to their global weight.

Are there times when a home tilt makes sense?

Yes. If you have future liabilities in local currency (housing, tuition) or you want to simplify taxes, a modest tilt can be justified. Keep it intentional and sized.

What about emerging markets?

Global indexes already include emerging markets (EM). Adding a small EM tilt is optional; avoid excluding EM entirely to prevent regional concentration.

How do I reduce home bias in practice?

Replace single-country funds with global or All-World ETFs. Set an allocation policy (e.g., 80% global cap-weight, 20% local tilt) and rebalance to it instead of reacting to headlines.

Home Bias: The Hidden Risk in Your Portfolio

Overweighting your home market feels comfortable but concentrates risk. Here’s why it happens and how to diversify without creating tax headaches.

Bias Check

If your country is less than 10% of global market cap but more than 50% of your portfolio, you’re taking concentrated country and currency risk.

What is Home Bias?

Home bias is the tendency to hold a far larger share of domestic stocks than their global weight. Investors in the US, UK, Canada, Sweden, India, and Australia all exhibit this behavior despite different market sizes.

Why It Happens

Familiarity: You know the brands and news cycle.
Currency needs: You expect to spend in your local currency.
Access & regulation: Some brokers limit foreign listings (PRIIPs/UCITS).
Tax frictions: Forms, withholding tax, and paperwork discourage global exposure.

Why It’s Risky

Country/sector concentration (e.g., US tech, Canadian financials/energy, Swedish industrials)
Currency risk without diversification benefits
Policy and regulatory risk (capital controls, tax changes)
Missed growth in other regions and sectors

Fixing Home Bias (Practical Steps)

Measure: compare your country weight to global cap weights (ACWI/FTSE All-World).
Adopt a global core: one All-World ETF (VWCE, VT, VWRA, DHHF) or IWDA+EMIM combo.
Set a deliberate tilt: e.g., 20% home, 80% global. Rebalance to policy, not headlines.
Match currency to liabilities: keep cash for near-term local spending; hedge bonds where available.
Use local wrappers to handle tax but hold global funds inside them when allowed.

Tax & Wrapper Considerations

You can stay globally diversified while using local tax shelters. The key is picking the right share class and domicile:

US: Avoid PFICs; prefer US-domiciled ETFs in IRAs/401k. Consider foreign tax credits in taxable.
UK/EU: UCITS ETFs (PRIIPs compliant). Accumulating classes reduce admin in many systems.
Canada: US-domiciled ETFs in RRSP may reduce withholding; TFSA does not.
Sweden: ISK/KF simplify reporting; IE-domiciled ETFs help withholding compared to US-domiciled.
Australia/NZ: Use Super for tax efficiency; outside, consider broad local + global ETFs.

Evidence & Further Reading

MSCI,"The Home Bias Effect in Global Portfolios" — MSCI
Vanguard Research,"Global equity investing: The benefits of diversification" — Vanguard
Sercu & Vanpee (2012),"The home bias puzzle in equity portfolios" — Oxford University Press
Fisher, Shah & Titman (2017),"Should you tilt your equity portfolio to smaller countries?" — Journal of Portfolio Management
Attig & Sy (2023), "Diversification during hard times" — Financial Analysts Journal
Blanchett (2021),"Foreign revenue: A new world of risk exposures" — Journal of Portfolio Management
Anarkulova, Cederburg & O’Doherty (2023),"Beyond the status quo: A critical assessment of lifecycle investment advice" — SSRN
Goetzmann (2004),"Will history rhyme?" — Journal of Portfolio Management
Ritter (2012),"Is economic growth good for investors?" — Journal of Applied Corporate Finance
French (2022),"Five things I know about investing" — Dimensional
Bryan (2018),"World War 1 and global stock markets" — Global Financial Data
Episode 200: Prof. Eugene Fama (2022) — Rational Reminder Podcast
Merton (1973),"An intertemporal capital asset pricing model" — Econometrica

Frequently Asked Questions

Written by The InvestingFIRE Team

We are a group of financial data enthusiasts and early retirees dedicated to building the most accurate FIRE tools on the web. Our goal is to replace guesswork with math.