Calculate his home bias

Investing / Portfolios
1

Hi,

This is my first post here, but I’ve been reading this forum for several months.
Thanks to all for the quality and diversity of information that can be found here!

I have a question about my home bias.

My personal situation is as follows:

  • I’m in my thirties, I’m a Swiss citizen and I’m currently working in CH
  • I have no plans to work abroad
  • I don’t know where I’ll be living when I retire (perhaps in CH, perhaps elsewhere in Europe)

My net worth is as follows:

  • 35% in my own home in CH (= the part of my home I really own - the rest is owned by the bank)
  • 26% in cash (CHF) in a bank savings account (= about 15 months of salary - yes, that’s a lot)
  • 25% in my second pillar
  • 7% in my third pillar (Finpension - amount transferred this year from a bad life insurance policy)
    • 99% in “CSIF (CH) III Equity World ex CH Blue - Pension Fund Plus ZB” (= MSCI World ex CH, not hedged)
    • 1% in cash
  • 7% in equities (IBKR) :
    • 85% on VT
    • 15% on CHSPI

I started investing in equities very late in my life (2 years ago).

My objective is now to invest the huge amount of cash that has been “sleeping” in my bank savings account for many years in equities as soon as possible (in VT only, or in VT + CHSPI).
For personal reason, I want to keep at least 9 months of salary as a “security fund”.

Given my situation, and knowing that ~85% of my assets are currently in CHF (own home + bank savings account + second pillar) as is my salary, would there be any advantage to investing in CH equities?
Is the home bias calculated only in equities?

I like the idea of owning CH equities, and “protecting” myself against currency fluctuations, but about 40-45% of the SPI/SMI is concentrated on the three multinational giants (could the SMIM be an option ?), which I consider a bit risky.

Thanks

2

Home bias should not be confused with currency exposure. Investor can completely eliminate currency exposure to foreign currencies by hedging the currency exposure.

Home bias is typically used as a term of equity exposure in your home country. So just look at your overall equity exposure across your portfolio including 3a, and then see how much of it is invested in Swiss companies. Since 2a is not under direct control, you can choose to exclude it. Atleast that’s what I do.

Now next question is how much home bias? I have seen recommendations from 15% to 30%.
See this video for some insights

3

Yes Swiss market is very concentrated in three companies. But just remember lot of markets have concentrations like this. Even S&P 500 is super concentrated in Mega7.

I think if you don’t like such high concentration of SPI, then perhaps you can use a mix of SMI and SMIM to get a desired level of concentration

4

To lower fees and keep things simple you could use this kind of portfolio:

100% VT by IBKR
100% SPI Extra on Finpension 3a

Chspi is really concentrated with companies making like 15% of their businesses in CH and top 3 is almost 50%
So to me home bias should be invested in RE, cash, 2nd pillar and Small /mid cap. Anyway I guess they don’t do that much business in CH. If anybody has the statistics I am curious

5

note: I’m not sure that’s the standard way of accounting here.

One way to account for it is to count the mortgage as leverage, so your portfolio will be XX% RE (full value), XX cash, etc. and then you have some amount of debt (leverage).

(it’s just you might be a lot more invested into RE than 35% which is quite a bit of home bias)

2 Likes
6

Thank you very much for your answers.
I will think about it :slight_smile: