I Still Call Australia Home Bias

Global passive investment funds have a large allocation to local shares. Why?

It's 2025 and I'm spamming the proceeds of my house sale into the market. Yeah, I've decided to walk the minimalism talk ("the value of nothing") and become homeless. No wussing out on investing into Trump-world 2.0. It's time in the market, babes.

My vehicle of choice are ASX-listed, all-in-one, diversified ETFs (DHHF, IGRO, VDHG).

However, despite Australia having 2% of global market capitalisation they have around a 35% home bias towards Australian shares.

Furthermore, my superannuation fund has a 45% allocation to Australia.

Why? What's with this group-think? And is this going to cause regrets later?

via GIPHY

Turns out that this range has been decided upon for good reasons. Vanguard puts it best:

... a diversified portfolio allocation of 60% to international shares and 40% to Australian shares often delivered returns that may not have been the best but were never the worst. In fact, since 1970 the diversified portfolio outperformed both international and Australian shares by 0.1% and 0.9% respectively, all while having returns that were 5% to 25% less volatile.

Sure, past performance is no indicator of future returns, but it is the best, most convenient indicator we have so far.

Some other links, so that I can reassure myself of the strategy in choppy times:

• Lazy Koala Investing
• Reddit
• Vanguard's "The Role of Home Bias in Global Asset Allocation Decisions" (PDF)

Misc. Points

I've been a very haphazard investor, yeeting in cash whenever, wherever. However, over the decades my allocation has converged to 60% international and 40% Australian. Spoooky.

The all-in-one diversified ETFs are very ... diversified, containing thousands of holdings. No one counter is weighted more than 4%. People worry about tech concentration, but in these ETFs, exposure to the 'Mag 7' (Apple, Amazon, etc.) merely cracks 10%. Diversifying concentration means you're diversified, I guess(?).

Australian tax law favours jobless residents like me. I thus welcome the high dividends and franking (tax) credits that Aussie shares bring. My preference would change if I were a foreigner and/or a hard-working, high-earning 'battler' household 'doing it tough™' in this 'cost of living crisis™', but oh well. Play me a living-on-passive-income dirge on your tiny violin.