Home Bias in Investing: Why Australian Investors Should Diversify in 2025

Home bias—the tendency to invest predominantly in local assets—is as Aussie as meat pies and backyard cricket. But in today’s globalised economy, clinging to familiar territory can quietly erode your wealth potential. As 2025 ushers in new market trends and regulatory changes, it’s time to examine whether your portfolio’s local loyalty is helping or hurting you.

What Is Home Bias and Why Do We Fall for It?

Home bias describes the psychological pull to invest most of your money in companies, property, or industries based in your own country. For Australians, this often means loading up on ASX-listed shares, domestic bonds, or local real estate. Research by Vanguard and the ASX found that the average Aussie investor holds more than 65% of their equity portfolio in Australian companies—even though our market makes up less than 2% of global stock market value.

• Familiarity: It’s easier to trust what you know. BHP, the big banks, Woolworths—they’re household names.

• Currency comfort: Investing at home means less exposure to the volatility of foreign exchange rates.

• Tax incentives: The Australian franking credit system encourages investment in local shares, boosting after-tax returns for many.

But what feels comfortable isn’t always clever. The world’s best opportunities rarely fit within a single postcode.

The Real Risks of an Aussie-Only Portfolio

While Australia’s economy is robust, it’s far from immune to shocks. Home bias exposes your wealth to a narrow set of risks:

• Sector concentration: The ASX is dominated by financials and miners, leaving you vulnerable to industry downturns.

• Economic shocks: Local events—like the 2023 housing correction or commodity price swings—can hit hard if you’re all-in on home soil.

• Missed opportunities: In 2024 and 2025, US tech stocks, European green energy, and Asian consumer companies have outperformed many Aussie blue chips.

Recent APRA data shows that superannuation funds with greater international diversification fared better during the volatility of 2023–2024, cushioning members from local downturns.

How 2025 Policy and Market Trends Are Shifting the Game

This year, several factors are making global diversification both easier and more attractive for Australians:

• ASX-listed ETFs: The explosion of international ETFs means you can access US, European, and Asian markets with the same ease as buying CBA shares.

• Tax changes: The 2025 update to capital gains tax thresholds means offshore gains are now taxed more consistently with local ones, removing a key barrier for many.

• Superannuation reforms: New MySuper rules require funds to demonstrate international diversification as part of their best-interest duty for members.

These shifts have seen a spike in demand for global index funds, with Vanguard Australia reporting a 28% increase in international ETF inflows in the first quarter of 2025.

Practical Steps to Beat Home Bias

• Check your split: Review your current asset allocation—does international make up at least 30–40% of your equities?

• Consider currency: Decide if you want your global holdings hedged or unhedged, balancing risk and opportunity.

• Go global with ease: Explore diversified ETFs like VGS or IOO, which offer exposure to hundreds of overseas giants in one trade.

• Stay informed: Watch for new policy tweaks and product launches that may further level the playing field for offshore investing.

Remember: Diversifying globally doesn’t mean abandoning Australia—it’s about making sure your financial future isn’t tied to just one corner of the world.

Conclusion

Home bias is understandable, but it’s a hidden drag on your wealth in 2025. As global markets become more accessible and policy shifts remove old barriers, there’s never been a better time for Australians to think beyond the backyard. Your portfolio—and your future self—will thank you for it.