One of the biggest decisions you’ll make as an investor is where in the world to put your money. Do you spread it across the globe, or stick mainly to your home market?
Surprisingly, most people — in the UK and elsewhere — have what’s called a home bias. That means they hold far more of their local market than global weightings suggest. Let’s look at why this happens, and what it means for your portfolio.
What Is Home Bias?
Imagine you’re at a buffet with dishes from all over the world — Italian, Indian, Mexican, Japanese — but you only pile your plate with fish and chips. That’s home bias in investing.
- UK investors often hold a big chunk of UK shares.
- U.S. investors typically load up on American stocks.
- Japanese investors mostly hold Japanese companies.
This feels comfortable, but it leaves your portfolio tied to the fortunes of a single economy.
The Case for Global Funds
Global funds spread your investments across markets around the world. Instead of betting heavily on one country, you get exposure to the U.S., Europe, Asia, emerging markets, and beyond.
Benefits of global diversification:
- Reduced risk: Different economies move in different cycles.
- Access to growth: Emerging markets and tech-heavy U.S. firms can drive returns.
- Currency diversification: Not all your eggs are in the pound basket.
For example, the UK makes up only around 4% of the world stock market by value. If you only invest here, you’re missing out on 96% of opportunities elsewhere.
Why Do We Stick Close to Home?
There are a few reasons investors fall into home bias:
- Familiarity: We feel safer owning companies we know.
- Currency worries: People worry about exchange rates.
- Dividends: The UK market is known for high dividend payers, which appeals to income-seekers.
- Patriotism: A sense of supporting the local economy.
But comfort doesn’t always equal good risk management.
The Balanced Approach
You don’t need to abandon UK shares entirely — they can still play a valuable role, especially for income. But it makes sense for most investors to balance them with global exposure.
A common approach is:
- Global equity funds for the core of your portfolio.
- A modest allocation to home shares for familiarity, currency needs, or income.
Why This Matters
A globally diversified portfolio helps you avoid being over-reliant on a single market. It gives you resilience if the UK economy slows, while still letting you benefit from worldwide growth.
👉 Next in this series, we’ll look at Factor Investing — what terms like “value,” “momentum,” and “quality” really mean, and how investors use them.
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