Home Country Bias

Home country bias is the tendency for investors to favor companies from their own country or region over foreign firms. This inclination toward familiar domestic brands and markets is common worldwide and can lead to portfolios that are overweight in home-country equities.

Key takeaways

• Home country bias means preferring domestic stocks over international ones.
• Many investors overweight domestic equities relative to their share of the global market.
• Excessive domestic concentration reduces diversification and can increase portfolio risk.
• Intentionally adding foreign exposure can improve diversification and access growth opportunities.

Why it happens

Familiarity and comfort drive home country bias. Investors are more likely to recognize, trust, and follow companies they know—brands and local market narratives feel safer. Global brand recognition (for example, companies like Coca‑Cola, Google/Alphabet, or Toyota) can reduce this effect, but many investors still prefer local listings.

A common illustration: the U.S. accounts for less than half of global market capitalization, yet the average U.S. investor often holds well over half their equity exposure in U.S. stocks.

Risks of home country bias

• Reduced diversification: Concentrating assets in one country ties performance closely to that country’s economic, political, and market cycles.
• Higher downside risk: A severe downturn at home can significantly damage a portfolio that lacks international exposure.
• Missed opportunities: Fast-growing sectors or companies may be located abroad; bias can cause investors to overlook them.

How to reduce home country bias

1. Recognize the bias: Periodically review your holdings by country and compare them to global market weights.
2. Set target allocations: Define a strategic international allocation that fits your risk tolerance and investment horizon.
3. Use broad international funds or ETFs: Low-cost global or regional funds make it easier to gain diversified foreign exposure.
4. Rebalance regularly: Maintain target weights through rebalancing to avoid drift toward domestic concentration.
5. Consider currency and political risk: Evaluate how exchange rates and local governance affect foreign investments.
6. Seek advice when needed: A financial advisor can help design an appropriate global allocation.

Special considerations

If an investor’s home market is large and has historically performed well, the temptation to overweight it is stronger. Still, international diversification is a fundamental tool for long-term wealth generation. For investors with long horizons, adding foreign equities can both smooth returns and open participation in different growth drivers.

Conclusion

Home country bias is natural but can lead to suboptimal portfolios. By recognizing the bias, setting intentional global allocations, and using diversified international instruments, investors can reduce concentration risk and broaden their opportunity set.