How to Get Started Investing, and tips on avoiding home country bias
Equity Mates’ podcasters Alec Renehan and Bryce Leske say its a big world out there and technology has made it easy to invest in it all.
It’s a big world out there and technology has made it easy to invest in it all, according to Alec Renehan and Bryce Leske, hosts of the Equity Mates podcast series and authors of new book Get Started Investing: It’s easier than you think to invest in shares.
Equity Mates Investing Podcast is currently the top investing podcast for Australians on Apple Podcasts, according to analytics firm Chartable, and attracted seed funding from Stake founder Matt Leibowitz in December 2020 — reportedly a “six-figure sum” — in exchange for 8% ownership.
Breaking down investment platforms, jargon, and the difference between managed and indexed funds, the duo’s new book Get Started Investing is pitched at readers who want to make their first tentative steps.
Get Started Investing. Source: supplied
Below is an edited extract from Get Started Investing which covers a common issue for new and seasoned investors: home country bias.
Be global
The past few years have seen an amazing improvement in access to stock markets around the world for Australian investors. Even as recently as 2015, when Alec started investing, it was difficult and expensive for everyday investors to access overseas markets. You were confined to investing in Australia. By 2018, Stake had launched in Australia, offering everyday investors free brokerage for US stocks.
Technology is breaking down the barriers to the world.
But too many Australians only invest in Australian stocks. This preference for investing in your home country is known as home country bias.
Source: Get Started Investing
There’s nothing wrong with investing in Australian companies. We have some excellent companies and generations of investors have retired comfortably investing in only Australian companies.
We just think the world is a better pool to fish from.
Think about what you use
We’re writing this book on an American computer, wearing clothes made in Asia, drinking coffee grown in Brazil, listening to music from a British band on a music app developed in Sweden.
We are all global consumers and we should be global investors as well. Think about what you’re buying, what you’re watching and what you’re reading. How much of it is made in Australia by Australian companies?
Chances are, not too much.
Then think about some of the most amazing technologies being developed. Or think about the companies you admire, or read about in the news. Think about where the most brilliant entrepreneurs are coming from. There’s not one country that has a monopoly on brilliant ideas, brilliant people or brilliant companies.
So why would you only invest in Australian companies?
The problem is that too many people around the world have a home country bias in their investing portfolios.
- The average Australian investor has 67% of their money in Australian stocks, despite Australia being 2% of the global stock market.
- The average American investor has 80% of their money in American stocks, despite the USA being 40% of the global stock market.
- The average Canadian investor has 59% of their money in Canadian stocks, despite Canada being just 3% of the global stock market.
- The average Japanese investor has 55% of their money in Japanese stocks, despite Japan being 7% of the global stock market.
From the experts: Avoid home country bias
Many of the expert investors we speak to caution against investing too much of your money in your home country.
Pete Matthew is a chartered financial planner in the UK and managing director of Jacksons Wealth Management. He explained how being overly exposed to your home market means you could be missing out on opportunity.
“Way too many investors are over exposed to their home market. The UK market is something like 6% of global stock markets by value. So for UK investors to have 50, 60, 70, even 100% of their investments in the UK is missing out on a whole lot of value,”
Matt Leibowitz is the founder of Australian online broker Stake. He shared why he looks to the USA for investing opportunities.
“International investing is really important for Australians . . . I can see now we’re using an Apple product, probably search on Google, going home to watch Netflix, probably going to buy something on Amazon in the next month or so, probably an NVIDIA chip somewhere in there . . .
“Buy something on your Visa and MasterCard, these companies are listed overseas.
“You know, we’ve had Spotify and Dropbox recently list. It actually makes a lot more sense for Australians to be looking at what they understand. If they’re going to invest in something they know, they should actually be investing in the company, and therefore starting with companies they know. And those companies do not list in Australia.”
How Australia measures up
To give you an idea of how Australia measures up, consider this: there are approximately 630,000 stocks traded globally and 2,200 stocks in Australia—meaning that we are less than 1% of the total number of stocks traded around the world.
Or another way to think about it: the global stock market is worth $70.8 trillion US dollars, and Australia’s stock market is worth $1.3 trillion US dollars — meaning that Australia’s stock market is about 2% of the global stock market.
Meaning that there are plenty of options out there.
Source: Get Started Investing
Those numbers are a little bit abstract. To give you an idea of the opportunity to invest overseas, the table shows how some of Australia’s biggest companies measure up to their global competitors.
As investors, we have the opportunity to own some of the best companies in the world. We are not limited to our little corner of the world. We can invest globally.
Why the world is less risky
Being global isn’t just important because of the opportunities we have overseas. It can also help us reduce the risk.
We’ve covered diversification in Part 5, but it’s important enough to remind ourselves again. If all of your investments are in Australian companies and something goes wrong in the Australian economy, that means all of your investments will suffer. But if only a quarter of your investments are in Australia, then something going wrong in Australia will only affect a quarter of your portfolio.
If you think more broadly than just your stock portfolio, your job and your home are based in Australia. There’s no way to diversify those two things away (unless you move). If something goes wrong in the Australian economy, your job may be at risk and the value of your home may fall. Owning overseas stocks means not everything is exposed to the performance of the Australian economy.
What are the best ways to access global markets?
There are plenty of ways to access global stocks:
- Individual stocks: Australians can sign up to online brokers that offer international stocks. You can buy shares in companies around the world from the comfort of your living room.
- Index funds: There are Australian funds that track foreign stock market indexes. For example, you can buy an Australian ETF that tracks America’s S&P 500 index or the UK’s FTSE 100 index.
- Managed funds: There are Australian-based professional investors who invest around the world or in specific foreign countries. You can put your money in their funds and have them invest around the world on your behalf.
This is an edited extract for Get Started Investing by Alec Renehan and Bryce Leske, Allen and Unwin, RRP $32.99, available August 31 at Booktopia.
