Home Bias Lives On

Hesitant to invest abroad despite weak domestic economy
Canada’s weak economic situation has cast a shadow over the mood of many Canadians particularly relative to other countries who have healthier economies. Despite heightened concern about cost of living and the economy, investors in Canada continue to exhibit a strong home bias and hold three-quarters of their portfolios in securities invested domestically. This preference to keep their money in Canada is largely borne from familiarity, if not a false sense of security, and those who do choose to invest abroad provide good lessons for all.

Percent of their Investments in Canada vs. Abroad

Thinking about your total investment portfolio (including stocks, bonds and funds), about what percent is invested in each of these?

76%

CANADA

24%

Rest of the World

A Polite but Pessimistic Nation

Canadians are less positive about their financial future than residents in the U.S. and United Kingdom. This is true regardless of affluence, but particularly so for those who are less well off. For most in Canada, the high cost of living is a primary concern, while the economy, taxes and inflation also rank high as significant risks to well-being.

Home Court Disadvantage

Canadians continue to invest the large majority of their portfolios domestically despite growing concerns about the state of the country’s economy and its potential impact on their investments. The reason why? General preference to keep their money in Canada (49%), and feeling more comfortable domestically (36%). But educational challenges are an undercurrent as 27% say that they just don’t know enough about investing abroad, while 18% have never even thought about international diversification, let alone its potential benefits.

Step Across the Border

It might feel safe, but the strong home bias of Canadians may be adding risk to their portfolios, not reducing it, given the current state of the economy. It’s important for investors to realize that there are many opportunities for them to invest in stronger markets, which can provide benefits that may not be available in their home market.

01.
Diversify, diversify, diversify

It is rare for one geographic market to consistently perform better than others, let alone predict which global region will be a top performer in a given year. With that in mind, it makes sense to hold a portfolio that is diversified across a number of countries.

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02.
Find the Right Mix

Review your current portfolio to assess your current home bias and get comfortable with the idea of gaining greater geographic exposure. It’s important to educate yourself and consider asking a financial advisor for help.

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03.
Consider Your Choices

There are several good possibilities available for adding international exposure such as exchange traded funds. One of the biggest benefits that exchange traded funds offer is low cost access to various geographic markets. If you haven’t already considered ETFs, now might be the perfect time.

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* Canadians with $150,000 or more in wealth and investments.