Are you staying too close to home with your investments?

Home country bias can lead to improper diversification and unnecessary risk.

Jeffrey Bunce, CFA 1 December, 2015 | 6:00PM
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Note: This article is part of Morningstar's 2015 Global Equities Week special report.

The famous investor Peter Lynch popularized the concept of "buy what you know" as simple, intuitive advice for the average investor. Canadians, like local investors in other markets, tend to heed this advice and favour domestic stocks over global ones in what is referred to as home country bias.

The problem, though, is that sometimes what you don't know is better than what you do know. While there are some reasonable arguments for favouring domestic stocks, such as a short investment time horizon or income requirements, often home country bias stems from historical quirks, behavioural biases and a misunderstanding of the risk of investing globally.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Bausch Health Companies Inc35.52 CAD0.34Rating
Loblaw Companies Ltd94.01 CAD0.74Rating
Morrison (Wm) Supermarkets PLC ADR19.54 USD-0.66

About Author

Jeffrey Bunce, CFA

Jeffrey Bunce, CFA  Jeffrey Bunce, CFA, is a senior investment analyst for Morningstar’s Investment Management group.

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