How it works
Home bias — overweighting domestic markets far beyond their world-capitalization share — feels prudent and behaves dangerously in exactly the scenarios that worry investors most. Domestic familiarity hides concentration: when a nation's market uniquely staggers (lost decades happen; Japan's 1989 peak took decades to revisit), a 70% home portfolio absorbs the brunt while a globally spread benchmark dilutes it. This stress test quantifies the asymmetry with YOUR numbers: apply an illustrative home-market decline and a milder elsewhere-decline to both your weighting and a chosen benchmark, then read the dollar gap between them. The loss ladder across weights 100% down to 40% makes the relationship mechanical — each ten points of home overweight shifts shock exposure measurably — and the post-shock weight calculation exposes passive concentration creep, since crashes mechanically RAISE the wounded market's share of what remains. Honesty requires symmetry: concentration amplifies home booms too, and the drops here are user-supplied illustrations rather than forecasts. Currency effects and multinational earnings overlap blur borders further. The tool sizes exposure so the decision — how much homeland is enough — becomes arithmetic instead of instinct.
Formula
Loss = value × [home% × home drop + (1 − home%) × other drop] | Excess = your loss − benchmark-mix loss | Post-shock weight = surviving home ÷ surviving total
Tips
- Compare against world market-cap weights, not against zero — some home tilt is defensible.
- Remember multinationals blur borders: domestic indexes already hold global earnings.
- Crashes raise the fallen market's weight passively — rebalancing restores the plan.
- Currency-hedged international funds change the math; be consistent about which you hold.
- Run multiple stress severities — ordering of pain differs from any single scenario.
Frequently asked questions
- What is home country bias in investing?
- It is the tendency to hold far more domestic stock than global market weights suggest — American investors commonly run high US concentrations against roughly 40–60% world-share comparisons, and the pattern repeats in nearly every country. Familiarity, home optimism and inertia all feed it.
- How much international diversification should I have?
- Common anchors range from full market-cap weight — roughly 40–60% of a global equity portfolio depending on how you count — down to a 20–30% minimum for skeptics. The exact figure matters less than avoiding extreme concentration whose downside lands hardest in domestic-crisis scenarios.
- Doesn't my home country market already give global exposure?
- Partially — large domestic firms earn half or more of revenue abroad, softening pure geographic concentration. But listing currency, accounting and investor base still anchor home; in domestic crises those linkages correlate rather than protect, with cross-market correlations running high (0.7–0.9 illustrative) even so.
- What happens to a concentrated portfolio if the home market crashes?
- Outsized losses plus passive creep: a 70% home weight suffering 35% while world markets fall 22% loses roughly 31% overall and finds home share RISEN toward 74% afterward. Rebalancing then sells safer assets to buy the wounded home market — disciplined but uncomfortable.
- Is concentrating at home ever justified?
- Arguments exist — no currency mismatch, no foreign withholding friction, easier behavior holding familiar names. The honest framing is cost: you knowingly accept larger home-crisis drawdowns, like the 35%-versus-22% shock here, in exchange for simplicity. Price that premium explicitly before accepting it.