Investing in shares: how a home bias is hurting many Australians

Home is where the hurt is for investors who have not broadened their financial horizons, but the good news is it can be changed.

Older Australians appear to be doing themselves a disservice when it comes to investing on the share market.

A bias towards Aussie stocks has meant many missed out on the strong gains on offshore markets of the past two decades – particularly in the US with its stellar growth of global tech giants Apple, Amazon, Google and Microsoft.

Many local investors have instead focused on Australia’s big four banks and other blue chips, which despite their solid dividend payouts have not been enough to offset the global growth offshore.

Let’s look at the numbers. Since the mid-2000s Apple shares are up 14,000 per cent from $US1.30 to $US189, Microsoft rose 1200 per cent from $US25 to $US328, and Google’s owner Alphabet increased 1700 per cent from $US7.38 to $US136.

In contrast, Australia’s biggest bank – the Commonwealth Bank – has merely trebled from $38 to $101 in the same period and fellow corporate giants BHP and Woolworths also trebled in value.

Fans of ASX-listed stocks will argue that Aussie shares pay much higher dividends than overseas stocks. That’s true, but still not enough to make homegrown investments the best and only option.

The All Ordinaries accumulation index, which measures total returns from our 500 biggest companies, has climbed 247 per cent since 2005, while a similar accumulation index for the S&P 500 index in the US was up almost 490 per cent.

Investing only in Australia means missing out on big opportunities. Picture: iStock

Research by global investment platform eToro has found Aussie investors have a bigger home bias than those in other countries, and it is most pronounced among people aged over 55.

eToro market analyst Josh Gilbert says older investors tend to focus more on income, and for this the ASX is the best market globally to deliver the goods.

However, recent interest rate rises have taken some shine off the share market’s income, with dividend yields now similar to what people can get on bank deposits.

And if there is no share price growth to go along with the income, an investor’s money is effectively going nowhere.

Sticking with quality Aussie stocks won’t send you broke, but it’s important to think about the cost of missed opportunities, and international investment is easier than ever to get into.

Exchange traded funds have boomed in the past 15 years and allow people to buy one share on the ASX that spreads their money across many different overseas companies, an international share index, or sector-specific investments such as robotics, AI or cybersecurity.

Online investment platforms allow small-scale investors to buy chunks of overseas shares – a handy move given the high prices of some individual stocks. Shares in US billionaire Warren Buffett’s company Berkshire Hathaway currently cost more than half a million US bucks each.

Traditional Aussie stockbrokers are offering clients more overseas options than ever before, while the nation’s biggest online broker CommSec recently launched a share trading platform offering exposure to 13 international markets with brokerage fees as low as $5.

Investing internationally carries extra risk because of currency movements and investors’ lack of familiarity with companies and the markets in which they operate, but when the differences in investment returns are so large surely it’s worth considering.

The latest eToro data shows almost 30 per cent of Australian over-55s directly hold ASX-listed shares but only 10 per cent have foreign-listed shares. That’s a big gap.

Millions of Australians invest indirectly in international shares through their superannuation funds, which typically spread at least a third of members’ money globally, but perhaps it’s time for older investors – including myself – to take a closer look.

Originally published as Investing in shares: how a home bias is hurting many Australians