I have both active and passive investments in my cash account. The active investments are in local equities while the passive investments are in global/US equities. Part of the reasons is because I understand that passive investments, especially using index funds, can lead to better performance over active investments. In recent years, I have come to realise that there is another important reason for having passive investments that are invested globally. It is the increasing disadvantage of the home bias in the face of globalisation and technology.
Since my active investments are in local equities, I am highly susceptible to the home bias. Home bias means that an investor invests only in companies operating in his home country due to familiarity with local companies and regulations. Literature shows that home bias results in lower performance as the investor gives up the opportunities of investing in better managed companies overseas. With ...
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