The size of the home-country overweight
The numbers: US stocks represent roughly 60% of global market capitalization (MSCI ACWI, 2023). Yet the average US household holds approximately 75-90% of its equity portfolio in domestic stocks. The 15-30 percentage-point overweight to a single country's economy is a silent concentration risk that most investors never consciously choose.
Domestic weights vs the global benchmark
| Portfolio Type | Domestic Weight | International Weight | Bias vs. Market |
|---|---|---|---|
| MSCI ACWI (global benchmark) | ~60% US | ~40% non-US | Baseline (no bias) |
| Average US retail investor | ~80% US | ~20% non-US | +20pp domestic overweight |
| Typical US 401(k) | ~75-85% US | ~15-25% non-US | +15-25pp domestic overweight |
| UK, Japanese investors | ~70-80% home market | ~20-30% abroad | Same pattern, different country |
Home bias appears in every country studied
Home bias is universal — not just American. French & Poterba (1991) documented it across the US, Japan, UK, France, and Germany. Every country's investors dramatically over-weight their home market. The bias is not rational information — it is familiarity dressed up as conviction.
Three costs of overweighting your home market
Three specific costs. (1) Concentration risk: your portfolio becomes a bet on one economy, one regulatory regime, one currency. A decade of domestic underperformance (see US 2000-2009, Japan 1990-2020) can devastate a home-biased portfolio. (2) Missed diversification: international equities often have lower correlation with US stocks, especially in emerging markets — adding them can reduce portfolio volatility even if expected returns are similar. (3) Opportunity cost: US stocks were roughly half of global market cap in 1980, fell to roughly a third at the peak of Japan's late-1980s bubble, and have grown to ~60% by 2023 — the next large appreciation cycle could come from a market you have zero exposure to. Source: French & Poterba, 1991, Journal of Economic Perspectives; Cooper & Kaplanis, 1994, Review of Financial Studies.
Common reasons for home bias vs the reality
| Reason Investors Give | The Reality |
|---|---|
| 'I understand US companies better' | Familiarity is not the same as informational edge. Index funds remove stock-selection from the equation entirely. |
| 'International is riskier' | International stocks have lower correlations with US equities. Adding them can reduce total portfolio volatility via diversification. |
| 'The US always outperforms' | Recency bias: 2010-2023 was exceptional for US equities. 2000-2009 saw US stocks underperform international by a wide margin. |
| 'I have enough diversification across US sectors' | US sector diversification does not protect against country-level risks: USD appreciation, US regulatory changes, domestic recession. |
What Vanguard's research shows over decades
Vanguard's home-bias research (annual 'Global Equity Investing' note) consistently finds that a globally diversified portfolio — roughly matching MSCI ACWI weights — produces better risk-adjusted returns than a US-only portfolio over most 20-year rolling windows. The drag from home bias is not catastrophic in any single year; it accumulates silently over decades.
Measure your own domestic weighting
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Diagnosing a 25-point domestic overweight
Which single fund best reduces home bias
Sit with the ideas.
French & Poterba (1991) documented home bias across five countries. What does it mean that Japanese investors over-weight Japanese stocks by roughly the same margin that US investors over-weight US stocks?