Warren Buffet once said that he doesn't invest in Russia because he's from a hostile country and that poses additional risks that stocks don't compensate for. He was right as if he had invested in Russia he would have likely been forced to sell at a loss.

@JLchevz

5 ай бұрын

That makes so much sense. And... China is proving him right too. China is preventing a lot of stock trading including shorting and investing at closing times.

@jmc8076

5 ай бұрын

Buffett also knows money flows 🌎 🌍 from many large sources (private and corp) incl controversial or unpopular places/spaces. And vice versa. For look up largest shareholders of any large corp (USA or outside). Like Russian dolls? Hard to weight purely domestically - good video topic.

@archvaldor

4 ай бұрын

"Warren Buffet once said that he doesn't invest in Russia because he's from a hostile country and that poses additional risks that stocks don't compensate for" That doesn't sound right. Risk would clearly be factored into the stock. No one could have been unaware of the risks in Russia long before the Ukraine invasion. It should be added Buffet has under-performed the market for some time now.

@greenUserman

4 ай бұрын

​@@archvaldorthese risks are NOT priced in because they don't affect all investors. An American investor in a Russian company faces a risk of Russian retaliatory economic actions specifically created to harm American investors (witholding assets, charging extra taxes, etc.) Russian investors in Russian securities do not face that risk and therefore will not price in risks that don't apply to them. That results in securities that have a different intrinsic value depending on the nationality of the holder.

@samsonsoturian6013

2 ай бұрын

@@archvaldor Except he's competing against Russian shareholders who simply do not have that risk and can bid up the price

One issue I have with home bias is that, as a Norwegian, it's not that easy to decide what is "home". For instance, I could focus on the Oslo stock exchange. Or include the Nordics as we are mostly similarly treated tax wise. I'm also part of the EU through the EEC, so an European index could be "home" as well. And, with the listed stocks on Oslo would make me very oil/energy biased with a heavy percentage in Equinor. So high in fact, they had to make a fund index to reduce the weight of Equinor to comply with diversification rules for mutual funds.

@samsonsoturian6013

5 ай бұрын

Come on. We all know you're buying S&P stocks one way or another

@739jep

5 ай бұрын

Maybe have to consider the home bias (if there is one) of the Norwegian sovereign wealth fund as well.

@jmc8076

5 ай бұрын

That is tricky. Beautiful country.

@jmc8076

5 ай бұрын

@@samsonsoturian6013 You can do both.

@SapereAude1490

5 ай бұрын

Yeah, we need an EU/EEC Ben Felix.

Ben Felix is a stud.

@David-wh7rm

5 ай бұрын

^ Ben on his burner account 🤣

@jmc8076

5 ай бұрын

@@David-wh7rm That’s funny.

For US-based investors looking for clarity like myself, I found the paper, it says 50% Domestic and 50% International. Thank you Ben for another illuminating and informative video! There is so much info packed in these, they are super useful! From the paper: "An even mix of 50% domestic stocks and 50% international stocks held throughout one’s lifetime vastly outperforms age-based, stock-bond strategies in building wealth..." Also visible in the screenshot in the first sentence of the paragraph with the highlight: "An allocation strategy of 50% to US stocks and 50% to international stocks is roughly in line with global equity market weights, which should be appealing to American investors."

Wow. That's stat about Denmark index being the best performer with only 16 holdings is pretty interesting!

@ArD43534

5 ай бұрын

The Denmark index is basically Novo Nordisk which is on the moon ahahah

@mr.vash42

5 ай бұрын

If you mean Denmark specifically, yeah, who would have thought. However, if you are thinking about generally that a small market has outsized returns, I think it makes sense that the less individual stocks, the higher the variance. As such, you would expect higher representation at the low and high end of the returns spectrum.

@simonp6339

5 ай бұрын

And you'll probably find many country indices with such few holdings and disastrous returns. If you roll the dice 150 times, you get some high numbers sometimes, not a big surprise ;)

@andrep.2004

2 ай бұрын

Novo Nordisk ist the answer.

Ben, I love your respect for the intelligence of your audience- even though I often have to listen twice.

@dvirc218

4 ай бұрын

I also watch every video around THREE times. To be honest, if I were quizzed on these videos after one watch, I would do poorly. That's modern YT. Big topics are chunked down to 5-10 minutes so you need to rewatch to comprehend every point.

How would a home country bias look for someone in the US given the market cap of the US is 60% of the world. 70-80%?

So glad to have founds such a great Finance youtuber from Canada!

@mrzimothy

5 ай бұрын

You should check out Plain Bagel as well; he’s great.

I’m so glad I found your chanel! Did a whole marathon of your videos. Thank you so much on your effort and PLEASE keep on the good work! Cheers from Brazil

_"Dad! Dad! Can we get some Canadian stocks?"_ _"No, buddy, we have Canadian stocks at home. Let's go."_ _"But, dad! Those are not Canadian stocks, those are Canadian Depositary Receipts of Yankee stocks!"_ _"They seem good enough for me."_ _"But, dad, I want _*_real_*_ Canadian stocks! All my investor friends have home country bias!"_ _"Well, if your friends decided to day trade options on Robinhood would join them just to fit in?"_ _"Hrmfhgromf... okay, I guess."_ _"Thought so. Now let's go. We still have to buy maple syrup before the snow shuts everything down for the rest of the year."_

@BenFelixCSI

5 ай бұрын

A typical conversation in the Felix household.

@JLchevz

5 ай бұрын

lol @@BenFelixCSI

@BigGroupHug

5 ай бұрын

Interactive Brokers

Great video as always Ben, been watching you for a really long time, you deserve every bit of growth for your KZread channel as you aren’t bias to one country

I keep all of my Canadian stocks in my non registered account. And it happens to work out to 30% of my overall stock portfolio is Canadian stocks (all in my non registered account). And I only have one Canadian holding: XIC. I subscribe to keeping things simple!

Ben has convinced me (for now, at least) to allocate considerably more to Canadian stocks than I otherwise would have. However, I think it's worth understanding home bias (in part) as a psychological failing, a cognitive bias. One of the most compelling examples of that that I've seen, was a paper that showed that American money managers had significant regional home bias... eastern managers preferred eastern stocks, midwestern managers preferred midwestern stocks, etc. And, then there's my father, who ran a small portfolio for a mutual insurance company in the bull market of the 90s, then retired just in time to miss the 2001 crash. He preferred Prince Edward Island stocks. He said it gave him comfort to see their trucks on the road, and he was unmoved when I suggested that companies in Nova Scotia probably had trucks, too. And, I'm not making this up, he also had 50 acres of woodland and a small maple syrup operation.

@simonp6339

5 ай бұрын

Absolutely, the cognitive bias aspect needs to be considered, that's what leads to an overallocation. Even many German investors only invest in the German index Dax (and/or individual German stocks), which is a dumpster fire of an index with only 40 companies, it used to be only 30 until 2021! And the only reason it looks passable is because it is a total return index by default. The Dax price index (without dividends) until recently was down compared to the year 2000. If you compare the Dax to an S&P500 TR (total return), or even an MSCI World, it's not pretty.

Great video once again. I don't have any home country bias in my portfolio, but that is just because I hold only one globally diversified, low cost index fund

@ehochmuephi8219

5 ай бұрын

Me as well, any plans on changing that? I mean there are some options here in Germany, I am not sure. A little on the expensive side.

@DekarNL

5 ай бұрын

I'm not. This is money for my children going to college and other later in life financial goals. Plus my pension has a home country bias.

@ehochmuephi8219

5 ай бұрын

Good point with the pension, same for me. Thanks a lot for your reply!

It’s good to hear a professional speaking about the benefits of home country bias. Here in the U.K. we have plenty of KZreadrs speaking negatively about it especially in regard to Vanguard’s U.K. Life Strategy funds which hold 25% U.K. stocks. Interesting that past data proves that it can actually be beneficial not detrimental.

Here in Australia, we have dividend imputation (going by the video, it sounds like Canada has a similar system), so there can be tax advantages to investing in home-country stocks. But not all companies are fully franked (some are completely unfranked, despite being Australian companies domestically listed), so they don't receive the same tax advantage (and in terms of taxation are functionally the same as investing overseas). The catch is, academic research has shown that the tax advantages of the franked stocks are heavily priced in, effectively mitigating a lot of the tax advantage.

@MultiMinecraftism

5 ай бұрын

I guess the market would price franked dividends to the 'average' Aussie market participant - whomever that is, so still a potential for alpha there if you aren't the average

@trs8696

5 ай бұрын

@@MultiMinecraftism I think it's actually more that there's a negative alpha penalty for foreign investors who choose to invest in the franked stocks. Dividend imputation is a good system in terms of avoiding double taxation, which in turn makes it easier for firms to pay out dividends instead of hoarding cash and buying learjets for CEOs. but it can lead to market segmentation internationally, in turn affecting liquidity and costs of capital.

Nice to see that I wasn’t the only one thinking something could go wrong on investing abroad. The risk of future “foreign mistreatment” is what makes me go 50 home / 50 world. Nobody knows what the future holds… As always, an awesome video. Thanks!

Thank you for your postings always Ben. Was wondering if you could do a video on Commodities/Futures?

Thanks for the great video! I’d love to hear your thoughts on Bonds one of these days (e.g. Global Hedged Bonds VS US Total Bond VS Pure Treausries, etc). Have a good one

Love the finance bro vest

Hello Ben, firstly thank you for your effort to try to educate people on investing. At one point in time your videos focused on factor investing and that approaches potential pitfalls. For example you talked about how factors can underperform even for a long time and that investors should be prepared for such outcome, however I think that you didn't really address the concept of how we as investor can verify that a specific ETF for example is capturing a factor that the ETFs name exclaims. At least for me personally that's much bigger road block to say small cap value investing than any potential underperformance. There probably isn't easy answers to this, but I'd still appreciate it if you had anything to share on the matter.

I think an overlooked factor are the employee share plans. Employees often accumulate a considerable amount of shares in their company and may not sell them for years or decades which significantly skewes their overall portfolio.

I like the bit with Fama talking about investors getting expropriated. I think in a flush of excitement, many of us forgot or ignored the special risks of investing in developing markets. I'll also point out something Taleb wrote, looking at the bond yields in Europe, there was no advance notice of war until just several weeks before the Nazis invaded France. Finally, except for academics seeking tenure, I think we can get sucked down a rabbit hole searching for an optimal portfolio. A great econ prof, Lars Osberg, taught me that economic theory will clearly predict there is a dead weight loss, without giving any idea how big the loss is. On international allocation, I think I can sleep pretty well aiming for a market weight, but increase Canada to 30%, decrease developing to half market, and avoid a couple of countries all together. After that, I think it's more fruitful to focus on other things... like lunch. It's not a question of whether that's optimal... Is there more than 25 basis points in expected returns by trying to do better?

Wow, that map with Denmark having the highest long term returns to Jan 24, would have looked a lot different 18 months ago. Great work, as you basically indicated, investing in your own country feels like a free hedge when your country's anti monopoly laws stop working (Australia).

I'm in a low tax bracket in the US, the fixed foreign withholdings tax for dividends for a lot of other developed markets out there can range from 20%-25%, and dividends are generally higher outside the US too. Currency fluctuations can also create some serious added volatility. If I were outside the US I'd probably own much more foreign stocks than I do now.

Great video thanks

In the UK it is cheaper to invest in the S&P 500 ETF than in the FTSE 100 ETF, and there's a 0.5 % stamp duty tax on purchases of UK shares.

This bias is ok for big countries like China or Germany. But I wouldn't do that living in Denmark, for example. Also this is driven by tax incentives, which will contribute a lot for a total net return. You can't earn S&P 500 returns, you will only earn SPX minus fees minus taxes, which will make huge difference.

Does home country bias also apply to bonds? Excellent educational video as usual Ben!

An assessment of how well pension funds are run (many of which have home country investment requirements) can also guide your decisions

The reasoning why I have chosen to invest ~1/3 in the Nordics (which is what I would consider market-wise to be my "home market") is that I know this place and I want to live here in the future too. I invest in my future, and in companies that I know will share my values on at least the general level. So far, this has also been monetarily a good choice.

Really interesting!

For a more in depth look, I highly recommend checking out Professor Aswath Damodaran's Valuation classes. There is an undergrad version, an MBA version, and an executive version of the class. The lectures are long, detailed, and can get dry, but they take what was discussed here, and explore the ideas even further in depth. The lectures are all on KZread, and the spreadsheets are on his website.

@evanwheeler7687

5 ай бұрын

Very cool recommendation.

@me0101001000

5 ай бұрын

@@evanwheeler7687 I hope you find his lectures useful. Just don't forget to take a lot of notes.

Ben Felix, your videos and commentaries are certainly interesting and well researched. Problem is that (like almost all CFA) they target an audience that has at least 30 years time to invest, i.e. an audience not older than 40. What about people who are in pre-retairement age (late 50, early 60). They have max 10 years remaining, to save and invest. You may assume they have little/no equity invested and have some near-cash savings (treasuries, CD, short term bonds, etc). What should they do with their savings. Invest now, with these insane valuation levels? Specific video on this topic is suggested.

@BenFelixCSI

5 ай бұрын

This video applies in the situation you are asking about: How Bonds are Hurting Your Retirement kzread.info/dash/bejne/fKCbr7V9idG6YtI.html

A while a go I flipped the coin and chose VEQT over XEQT. A delightful surprise that I accidentally picked the one with the Canadian bias closer to the optimal pointed by the studies (VEQT is 30%, XEQT is 25%).

in emerging markets, probably due to the market not being as efficient, the result would be the same, but a balance in bounds and other fixed-income options would make a difference. And of course, home county bias means the investor knows (or should know) those products. In Brazil, for example, treasuries and Bonds have a very different dynamic than those in the US. You have access to treasures and bonds that are inflation (CPI) + Bonus, Personal consumption expenditures (PCE) + bonus, or Fix-income considering 10,20,30,40 and 50 years.

So my plan of being VT in accounts that have the option, and VOO in the others is a good one ;)

i think this home bias effect makes sense when you consider information. Living in the united states my information collection focuses on whats happening here. My information collection when it comes to countries like canada or mexico is very small comparatively. so because of that i feel more comfortable investing in what I know.

What about for investors living in emerging markets?

Nice video. I think that another potential reason for home country bias would be that as a resident in a country you have a better understanding of the market, company, leadership, etc... of the investment vehicle. For example, as a Spanish person myself it is more difficult for me to judge Chipotle, since it is based in the US, than assesing Inditex (Zara's parent company).

As a Chinese myself, I gotta say, home country bias hurt me badly in the last few years. Though to be fair, it is notoriously difficult to take money out of China.

I live in an Emerging Market country (Brazil) and even though we have benefits to hold national stocks, I choose to bias my portfolio more in the direction of emerging markets as a whole instead of just my home country. That is because if the dollar gets weaker, emerging markets in general should do better. I find my country to be too unstable to hold it in any large amount. I understand that if China closes it's market, I get screwed, but I don't see another option since I might have runaway inflation risk in my country, eroding the value of my currency.

my home country bias is nonexistant because my portfolio follows the FTSE All World Index by a variation of VT or a mix of VTI/VXUS at their respective %. I sleep well and don't watch back. Fees end up being substantially low anywyays. When I'm no longer US based, I will just use Vanguard FTSE All-World UCITS ETF USD Acc. 0.20% expense ratio is super low already. move on with your life. But you're right than local tax lows can affect the home country bias (canadian dividends, us qualified dividends etc..). But one has to do the maths. It always sounded funny to me when fellow US based investor chose to exclude successful non US companies such as Samsung, LVMH, TSMC, Toyota and so on. why deprive yourself. buy the haystack

For me big part of why I invest in domestic stocks is because I know the products and services of the companies which helps a lot with my analysis

I’ve been wondering about home country bias when it comes to bonds. Most of these all in one ETF portfolios are going for some foreign bond exposure. I noticed (nearly a year later) there is a US discount bond ETF available from RBC ishares, ticker RUDB. Both hedged and unhedged options available. I was thinking holding a combination of RUDB and ZDB in a non registered account would make sense. And if we don’t want to have a home bias then would it make sense to have ~13x (seeing the US bond market is 51.3T and Canadian bond market is 4T on some chart I found) more allocated to US bonds over Canadian bonds?

Hey Ben, would you avoid Canadian small cap value and emerging market small cap etfs ?

In the UK we actually get taxed more to invest in UK-listed stocks because they have a 0.5% stamp duty charge. I'll stick to mainly US stocks. There's plenty of "evidence" that this is the best place to be

Hi Ben, I've heard that one of the reasons index outperforms managed funds is because of low fees and taxes (managed funds often trade making short term capital gains). Is there a reason why those studies mentioned are ignoring fees and taxes, and sometimes worst treatment for foreign investors, for the argument for global diversification?

First objective of my investing: having enough for retirement (i.e., more than the public retirement insurance). Second objective of my investing: having a retirement in case my home country has a big economic downturn. That is the reason I need to focus more on international stocks more than on European and German stocks.

Ben, What is your best recommendation for an all-in-one 100% equity ETF for Canadians?

How should the allocation look like for someone who’s home country is in emerging markets? 70% US and 30% International?

Amazing wrap-up thanks! One question for people living in one of the EuroZone countries (France, Germany, Netherlands, ...) : should you overweight the EuroZone as a whole (e.g: MSCI EMU or EURO STOXX 300) or only your home country? Been wrapping my mind on this question for a while. Thanks !

@BenFelixCSI

5 ай бұрын

Since a lot of this is related to currency and taxes, EuroZone is likely the way to go.

@simonp6339

5 ай бұрын

​@@BenFelixCSI EuroZone countries charge withholding tax against each other, and you can't always offset all of it, so I think the tax reason only works partly. For example Switzerland charges 35% withholding tax to Germany for dividends, but you can only offset 15% of that as per the double taxation agreement between the countries. So 20% tax remains, which is more than an ETF in Ireland pays for dividends from the US (15%). I'm not an expert on this though, maybe someone can elaborate.

I'm a bit uncertain where this leaves U.S. domestic investors with a bit of home bias in terms of the optimal ratio... it 'seems' like U.S. domestic investors are best anywhere from 20%-40% international, close to market cap... am I reading this right? I understand that this is the same ratio range for most other countries given their smaller stature and market sizes, you wouldn't want to weight an otherwise 80-60% in that one country along. U.S. is special here.

If you live in an emerging economy, would it be fair to say that you could possibly allocate higher than 30-40%? This is me assuming emerging economies generally tend to yield higher returns, board international ETFs are very few and taxation for these international ETFs is quite high.

What do you call it if you have home country bias for a country that is not ones home? Because I have that.

I remember dumping anything Canadian I had in late 2015 and just went whole hog into VTI (US Total Market). Bogle saw no reason to go outside the US. Wasn't there in the 2000s though, it was brutal for Canadians holding US equities.

@skzion2

5 ай бұрын

Bogle could not have had in mind VTI either, as he mentioned finding nuggets in the market. There's nothing nugget-like about the totality of the market.

Are we talking about home bias with individual stocks or indices ... or both / generally (which I assume since it may not be so easy to break down)? Home bias from single stocks may come from a very different place as it isn't equally convenient / possible to buy stocks from country X when living in country. Also, when analysing individual stocks / companies, especially smaller ones, it is definitely advantageous if you can use sources from the relevant country, i.e. in that country's language. So you can either limit the universe of stocks to chose from or risk missing information. Yes, I know the arguments against investing into individual stocks rather than index funds, but those studies weren't made exclusively with this channel's audience, I suppose. :D

My intuitive reason to buy international has always been that my income is heavily correlated to my home country's overall economic health, so it made sense for my portfolio to diversify away from that. Is there any theoretical support for this, or am I making a good decision for a bad reason?

It's just status competition. Doesn't really matter one's portfolio is doing good if it's doing less good than one's neighbor.

Hey Ben! What’s the best investment during an economic downturn? I watched the video on gold and you showed that it’s really not a great investment long term.

What do you think of intangibles for HML?

As you said, the Canadian government, through the great tax treatment of Canadian Eligible Dividends in non-registered accounts, versus the worst tax treatment of foreign dividends, plus the 15% or more tax withholding, makes us invest in Canada. It's not by choice on my part.

I’m thankful I’ve followed John Bogle’s advice and invested 100% in US index funds. That was by far the best investment decision I’ve made. Thank you Jack.

One thing I have wondered about, is that not-full time investors employed at a firm in their home country are massivly exposed to the economic situation in their home country through their sallary. Should that not be taken into account in a portfolio, resulting in a proportional bias away from home country assets?

Hi Ben, great videos! I was wondering if there is any place in a diversified portfolio for commodities etfs?

@BenFelixCSI

4 ай бұрын

Depending on your objectives, preferences, and beliefs there can be a place for anything. I don’t use them.

Would you consider making a video comparing stock market investing to real estate investing returns with equal amounts of leverage used?

Any thoughts on CAD/USD exchange rate hedging? If CAD pulls ahead because our central bank lowers the interest rates due to inflation returning to normal sooner than the US, are we expecting USD holdings to just decline?

In Canada, investors without employment or pension income can hold a significant number of Canadian dividend paying stocks without paying any taxes on the dividend income. Isn't there an argument that for those particular investors, they may hold much more than 30-40% of Canadian (dividend paying) stocks in their portfolio. You did say the paper didn't take into account taxes when making the recommendations.

The Vanguard 2023 paper said 30% was the best for volatility- not risk adjusted returns like I believe you are suggesting. With 38 years until retirement I want to maximize my returns not have them less volatile!

@BenFelixCSI

5 ай бұрын

To quote myself: _Vanguard looked at optimal home country allocations using _*_minimum variance analysis_*_ for Canadian investors in a 2023 paper using data from 1999 through May 2023 and found that a 30% allocation to Canadian stocks was optimal._ My analysis, mentioned after, suggests that home bias results in better risk-adjusted returns, and the academic paper quoted also finds home bias optimal for retirement accumulation and consumption.

What about countries like Switzerland? Their biggest companies are very globalized. The abroad revenues of the SMI companies make up around 90% of the total revenues. So are they really Swiss stocks/companies or just global stocks/companies with their headquarters located in Switzerland?

@robinspanier7017

5 ай бұрын

when switzerland makes most money outside and all hell breaks lose, everyone will lose equally. if you lose 100% in foreign and only 90% in home stocks, then you are still ahead with a hc bias compared to a market cap weighted investor. so you are relativly well off, which is the only thing that realy matters. compared to the stoneage we are all super rich, but no one cares. social comparison matters.

@kmouratidis

5 ай бұрын

Maybe you can do what the strategy I chose ("60% stocks / global") for my 3a does, that is 35% Switzerland, 35% NA, 10% Europe, 10% Asia, but instead of stocks you can choose local real estate and bonds vs global real estate and bonds (might even be the tax efficient choice). These should have a buffer to shield you from global volatility and currency issues. Probably D:

I am from HK, there is no extra cost or tax issue for investing foreign market. Furthermore, it is really bad stock performance in my stock market last few years, including HK and China. It is not because of economic growth, but policy and political issues. So should I still invest on my home country market? I know those factors are reflected on stock prices already, but it is very bad policy and it is not going to change. Does anyone have comment about it? P.S currently, I am investing low cost index fund. vt+vxus...and some small cap value etf...

@Ben Felix are we going to boom or bust today with Nvidia?

@robinspanier7017

5 ай бұрын

it will go up or down and maybe sideways. i am 100% certain.

Thanks for the video Ben. Big fan. How would you treat home country bias when living in a country where the stock market has a weight of around 0.3 of international market? 30% just sounds like so much

@BenFelixCSI

5 ай бұрын

Probably less than 30%. I’d also need to know about the tax treatment and cost differences for domestic vs foreign investing in that country. Also worth mentioning that it may be better to call it an economic region bias. Common currency and tax treaties in, say, Eurozone would suggest a Eurozone bias rather than an individual country bias.

@user-tx6su5lq1i

5 ай бұрын

Thanks for the reply. we are talking about a country that's not part of any regional zone, and that taxes are not favorible for domestic investing. here, there's nothing more cheep&efficient than investing in swap based SP500 ETF's, where we pay no dividend tax.@@BenFelixCSI

So I'm from Mexico and I keep around 10% of my portfolio in mexican stocks. Sounds reasonable I guess. I already invest in other developing economies and I already have mexican bonds (the equivalent of T Bills).

@JLchevz

5 ай бұрын

of course most of my portfolio is developed markets and the US is a big portion of that because of weight and stuff

Is the home bias of 30% Canadian equities in VEQT a good amount of home bias or too much in your opinion?

@BenFelixCSI

5 ай бұрын

This is what the video is all about! Based on the research discussed, 30% is probably fine.

@joshr.5199

5 ай бұрын

@@BenFelixCSI Haha I should finish the video before asking. Great video as always Ben! Thank you.

I can't believe home bias to UK stocks is a good idea no matter what the data about 35% 😂. I will say we're cheap, sadly it's cheap and flat with no growth unless I'm missing something.

U.S. investor here. Something clicked for me this morning. If I put all my money in u.s. stocks, the best possible outcome is that it doubles relative to other markets. If I put all my money abrod, I’m exposing myself to currency conversions, expropriations, and unfavorable tax treatment. It is reasonable then to split it down the middle or slightly lean toward home stocks for the local protections, and from that baseline, 10% leaning here or there shouldn’t make a huge difference. Furthermore, if I’m 50/50 or 60/40 weighted in my retirement portfolio of index funds, it might be sensible to put my non-advantaged funds in AVGE, which is 70/30 and has the benefit of factor exposure and built-in rebalancing.

@insomniacsupremacy

5 ай бұрын

Just buy $VT

Buy what you know!

Did you intentionally pick the same outfit you were wearing in the Fama interview, rerecord the interview or rerecord the reaction to the interview?

@BenFelixCSI

5 ай бұрын

I recorded myself watching the Fama clip yesterday for this video. I wore a red sweater for that interview.

@fsmoura

5 ай бұрын

He secretly remade his entire wardrobe to have multiple copies just one outfit, optimized for maximum comfort and simplicity, so he can jump into them every day without thinking and thus minimize decision fatigue, using the extra "freshness" of mind to achieve an extra 0.19% expected return when asset managing. His only mistake was thinking we wouldn't notice him wearing the same clothes everywhere ( o.o)

@Austin-fc5gs

5 ай бұрын

@@fsmouraamazing

@robinspanier7017

5 ай бұрын

i get you point fsmoura but a overweight in clothing styles might expose you to uncompensated risks. furthermore you may consider a clothing tilt towards riskier clothes like a small skirt or value-able items like watches if you have a long wearing horizont.

@robinspanier7017

5 ай бұрын

you could also consider a moderate fast fashin allocation to go with the momentum.. omg

Loved the video! As an italian investor, to introduce some home bias, would you say it would make more sense to invest in the Italian market or Europe in general? I recently started to buy FTSE Developed World ETF but wanted to reduce the big US exposure a bit..

@BenFelixCSI

5 ай бұрын

Probably Europe in general. A lot of this is related to currency and tax effects.

@stanislavtraykov3367

5 ай бұрын

I would argue you should not introduce home bias. Not for the Eurozone, and certainly not for Italy. The EU-wide tax effects are not big (in some cases you pay more taxes for stocks from across Europe than for US). More importantly, I believe the (otherwise excellent) analysis in the video does not sufficiently take future earnings & other exposure into account. Let's say Italy does great economically, better than expected, so stocks rise and you are happy you overweighted it. You would be happy for other reasons as well, in that scenario: less likelihood of losing your job, higher likelihood of earning more (and thus investing more), possibly better health & other services, and a higher price on your property (if you own one). You'd be better off even if you didn't do home bias in your investments (since you have inescapable home bias for so many other things). OTOH, if Italy (or the whole region) does poorly, missing expectations, your overweighting it will add insult to injury. You may earn relatively less (or even stop earning for a bit), AND your investments will also perform more poorly vs. a mkt-cap-weighted portfolio. From this perspective, removing home bias seems to reduce risk. (This would not apply to the same extent, if your future earnings potential is low compared to what you already have, you own no properties, and rely on no services in the country.)

@luggeee

5 ай бұрын

@@stanislavtraykov3367This is bad advice. One of the main drivers that makes a home bias working seems to be the currency. Therefore they should in fact introduce a home bias for italy or even better the euro zone. Your examples about what could happen to italy can be said about any country and by that logic a home bias would never make sense.

Hi Ben: When you refer to PWL 30% domestic stock allocation, is it 30% of total portfolio or 30% of Equity portfolio?

@BenFelixCSI

5 ай бұрын

30% of the equity portion of portfolios.

@freedomlife3623

5 ай бұрын

@@BenFelixCSI thanks, Ben. Keep up the great work, much appreciated.

7:37 So... What research IS there for people living in emerging markets? Could you talk a little about that, and maybe what you'd recommend? Thanks!

@BenFelixCSI

5 ай бұрын

I don’t know and don’t have sufficient expertise to make a useful guess. Market cap weights are always the starting point. You have to figure out whether there are sufficient reasons to deviate from that.

@gabrielchaimowicz329

5 ай бұрын

@@BenFelixCSI okay, thank you!

This video is for westerners. Not too many people have this bias when they live in Nigeria, for example. US assets are best to own long term. Besides the performance, the capital gains are tax free.

10:17 So just keep buying VEQT, got it 👍

nice video. There is a big risk I think you are missing with home bias. If your home bias is Canada/Australia I think you are adding significant commodity cycle risk at 30% as your job/lifestyle is likely linked to the cycle? Might be hard to see as China has been so large over the last 2+ decades but if the cycle turns 30% of your investments will suffer along with your job/lifestyle at the same time?

I will stick to my ACWI etf.

Hey Ben, recently turned 18 and started watching many of your videos. I understand that you believe the average investor (me) should hold total world index funds. However, on the topic of home bias, do we still need to invest internationally even after taking a 30-35% position in Canadian equity. It seems quite steep. Would a 30/70 allocation to Canadian/U.S. equities make sense, or would a 20/20/60 for Canadian/international/U.S. equities be better? Thanks for the help.

@BenFelixCSI

3 ай бұрын

I think international diversification still makes sense.

@johnsmith-lc8op

3 ай бұрын

Sweet, thanks for the advice and the help. So basically VEQT or XEQT for me. I recently watched your video about the common misconception that stocks return 10%. So what is the long-term real return (after inflation) that I should expect from an ETF or portfolio with similar weighting to these etf's? Thanks once again. @@BenFelixCSI

Double taxation pushes many to home country bias

Can someone explain how 65 (foreign) / 35 (home) is better than 100% foreign allocation? 30 year returns suggest that foreign stocks returned 9.90% p.a. while Australian stocks (my home) returned 9.20% p.a. Wouldn't 100% foreign be better? Is this due to tax efficiencies?

@luggeee

5 ай бұрын

Investing a bit in your own country has a benefit for you (the newer research Ben mentions in this video even goes to about 30%). This seems by a good part to be driven by currency effects. By investing in your own countrys stocks you are also exposed to your own currency. This hedges the probability that your currency appreciates compared to international currencies. Imagine you as an Australian would invest 100% into the US market. Now imagine the prices of the stocks don't move at all but the australian dollar strenghtens compared to USD: if you sell your stocks now you will get less australian dollars compared to what you invested even if the prices of the stocks did not move. And by investing in international stocks (which is always great for the diversification) hedges for the opposite: They are exposed to many other currencies and they will hedge for the probabilty that your own currency depreciates. So a good mix of the two seems to be a good choice.

Surely if you have too much in home country stocks then when your economy crashes and say you end up unemployed do you want to much in your country. So you end up unemployed and your investments go down a lot at the same time. Surely better to be more diversified think more than 10% in your own country is too much, unless you live in the US, work and get payed in dollars etc and invest in US dollars

I know you are Canadian and hat's the core audience perhaps, but would have been nice to see a quick mention of a reasonable home country bias for a US investor. Considering the total market weights, my completely-made-up-non-scientific-gut-feeling is 70/30 US to Ex-US allocation home country bias... which happens to be my own portfolio (plus, Yay AVGE for having approximately that composition!). 🙂

@BenFelixCSI

5 ай бұрын

That’s probably fine. Like I say in the video, it’s really hard to say what is precisely optimal for asset allocation.

@Omar-et7sb

5 ай бұрын

@@BenFelixCSI Yea... I agree! I meant that for someone in the US having 35% would actually be underweight on world market cap because US is around 60-ish.

@BenFelixCSI

5 ай бұрын

Ah got it.

@Omar-et7sb

5 ай бұрын

Thanks for all you do, Ben @@BenFelixCSI

Currency exchange cost is silent but deadly

Ben love your videos, but that number of country returns and number of holdings chart is quite misleading, doesnt account for dividends and theres a few countries on there that incentivise dividends and theresfore companies distribution almost all of their profits

@BenFelixCSI

5 ай бұрын

Those are total return indexes. Dividends are reinvested.

Is market weighted country allocation really best? Or should investors look to reduce the 60% US concentration risk in All World funds by buying a handful of regional ETFs and equalising the weights that way? Wouldn't that improve diversification and geometric mean of returns at the portfolio level? 🙏

@BenFelixCSI

5 ай бұрын

It's possible. As long as a portfolio is diversified and low-cost to implement, the exact perfect country mix is impossible to know.

@HamiltonRb

5 ай бұрын

@@BenFelixCSII try to balance this reluctance to home country bias with Warren Buffet instructing his executor, upon his passing, to allocate 90% to the S&P 500 and 10% to US treasuries. I realize the US is the largest economy, but he says ignore the rest of the world

@HamiltonRb

5 ай бұрын

@@BenFelixCSIWhat is your thoughts on Warren Buffet saying 90% should be in the S&P 500 and 10% in US Treasuries?

@nb9797

5 ай бұрын

​@@BenFelixCSIvery true Sir. If we don't know which country will perform in future for your specific horizon, then should you pay a little more (and only a little more) to improve diversification in the way I described? Reducing portfolio volatility that way is the only free lunch as they say, no? Trying to understand why one would go with market weighted funds, is it only because of the view that extra costs are not being compensated with the increased diversification? I'm also thinking 60% allocation to one country is still expressing a view without a crystal ball, even if that's the market weighted consensus, no? It's something I'm puzzling over at the moment :)

As European, holding big Stake in shell, diageo, glencore, british american tobacco, nestle and as opposite a nasdaq 100 etf. But I don't use the standard classification, my Portfolio is based on revenue sorted by super regions. So there is no home bias 😂🤷

So people prioritize their investments in the place they spend and earn that money and get better tax treatment in... not really surprising. Also there is more than one type of single country risk, for example one would not view investing 100% in the United States VS 100% in China as the same level of single country risk.

So the data suggest 30-40% home country allocation is optimal. 👍

@havaneseday

5 ай бұрын

40% for CAD?! That's 35% too much fam.

I personally think the US is in a unique position. But i slightly use non-US.

Investing in U.S. stocks, is really like investing in an entire CONTINENT, not just a single country; when you consider it's incredibly diversified industry base..far more so, than most other individual countries.

@Andygb78

5 ай бұрын

From a European perspective, the US is a continent masquerading as a single country.

@robinspanier7017

5 ай бұрын

yeah. but when us decides to hate us germans once again, i am screwed. even if its globaly diversified a 100%

Ben, I love your content. But I really wish you had taken this opportunity to clarify the implications of the research for U.S. investors. It's the elephant in the room. I know you've said in the past that a U.S. investor is probably best served with a global weighting of stocks, but that doesn't clearly track with the rest of this video.