Australians love to invest. But we also have a tendency to invest close to home.
For many people, the family home is their biggest asset. Then there’s super, which often has a meaningful allocation to Australian shares. And when Australians invest outside super, they tend to be drawn to companies and exchanges they know: big banks, mining, major retailers or the ASX.
That can leave us with more exposure to Australia than we realise. You might own property and shares and feel reasonably diversified. But if your property is in Australia and most of your shares are Australian too, a lot of your wealth is still tied to the same economy.
It’s a point Jack and Tash explore in this episode of the Get Rich Slow Club. The Australian share market has plenty going for it, but it is small compared with global markets and heavily concentrated in a few areas.
So what are Australian investors missing by looking mainly at home?
Why the Australian market is different
There are good reasons to own Australian shares. Dividends can be attractive, and franking credits are an important consideration for many Australian investors.
The problem is what you get alongside those benefits. As Jack points out, the Australian market is dominated by financials and mining. That means someone investing heavily in Australian shares isn’t getting much exposure to some of the industries that make up a much bigger part of global markets.
Technology is an obvious example. So is pharmaceuticals. Look at the world’s biggest listed companies and you quickly see how different the mix is. Apple, Nvidia and other major global companies simply don’t have many equivalents on the ASX.
Jack and Tash also discuss what this means for Australian investors looking for exposure to newer, fast-growing businesses. Canva is an obvious example of an Australian success story, but it remains privately held. Atlassian is another, although it chose to list in the US rather than Australia.
The point isn’t that Australia can’t produce successful companies, but that the Australian market gives investors a much smaller pool to choose from – particularly when it comes to some of the sectors that dominate global markets.
There’s another difference that’s easy to overlook. Many of these companies may be listed in the US, but they operate all over the world. Buying a global share fund therefore isn’t necessarily the same thing as putting all your money into the US economy.
Why do we favour Australian shares?
Part of it is probably familiarity; we know the companies. We hear about the big banks and miners all the time, and the ASX is the market most Australian investors encounter first.
It used to be much harder to invest overseas, too. Jack points out that accessing international shares is far easier than it was 10 or 20 years ago. ETFs have made it possible to buy a broad basket of overseas companies without having to research and purchase them one by one.
Yet the home-country bias remains. You can see it in superannuation, where Australian shares still make up a meaningful part of many portfolios.
The conversation gets particularly interesting here. Tash asks where that allocation actually came from, while Jack admits he isn’t sure there is a clear answer. His point is that if you were running a super fund in another country, you probably wouldn’t automatically decide that 30% of the portfolio should be invested in Australian shares.
There are reasons for it. Franking credits can make Australian dividends more attractive to local investors, while currency and liquidity are also factors super funds need to consider when investing overseas. Tash also raises the role of hedging and the way funds have traditionally approached international investments.
But the broader question is worth asking: are Australian investors holding more Australian shares because there’s a strong investment case for that allocation, or partly because it’s what we’ve always done?
What international shares add
The argument for international investing isn’t necessarily that Australian shares are bad – it’s that they don’t give you everything.
A global ETF can open up parts of the market that are relatively small here. It also means your portfolio isn’t relying quite so heavily on Australian banks, miners and the local economy. That can be useful if you already have a lot of Australia exposure elsewhere.
There is also the question of growth. Jack argues that some of the world’s largest companies are much more focused on innovation and have become global businesses in a way many of Australia’s biggest listed companies haven’t.
That doesn’t mean Australian companies can’t grow. It means the pool of companies available to Australian investors is much broader once you look beyond the ASX. And you don’t necessarily need to pick individual overseas stocks to get that exposure. A broad international ETF can give you access to that wider market in one investment.
That distinction comes up when Tash asks Jack about his own portfolio. He says around 75% of his listed investments are global, with the remaining 25% in Australia. He also explains that he’s comfortable taking a little more risk with part of his portfolio because of his age and circumstances, rather than suggesting that the same split would suit everyone.
When Tash asks whether 25% Australian shares is a reasonable starting point, Jack gives roughly that figure as his own approach, with the caveat that he doesn’t know an individual investor’s circumstances. His broader point is that global markets open up far more industries and companies than investors can access through the Australian market alone.
What about picking individual overseas stocks?
Looking overseas doesn’t have to mean becoming a stock picker. In fact, both Jack and Tash are fairly sceptical of the idea that most people should be choosing individual companies, particularly in markets they don’t know well. Jack points out that a company such as Apple is followed by a huge number of professional analysts, making it difficult for an individual investor to gain an obvious information advantage.
His preference is to have the bulk of a portfolio diversified, while leaving a smaller amount of money available for people who genuinely enjoy picking individual stocks.
That came up in the episode in a fairly relatable way. Tash mentions that she owns a few individual US shares that she received through a promotional offer when she started investing, including Nike, GoPro and Dropbox. She admits they haven’t exactly been a great advertisement for stock picking.
Look at your whole portfolio
This is where things get interesting for Australian investors, because your share portfolio is only one part of your wealth. If you own a home in Australia and have Australian shares in your super, you may already have a substantial amount riding on the local economy. Adding more Australian shares outside super can increase that exposure without it being particularly obvious.
It can be worth looking at the whole picture before deciding whether your portfolio is actually diversified. Take your property, Australian shares and international investments and work out roughly where your money sits. You may find that your exposure looks quite different when you include the assets outside your brokerage account.
Then ask yourself: how much of my wealth is ultimately tied to Australia?
There isn’t a single percentage that every investor should aim for. Jack discusses his own portfolio in the episode, but is clear that it reflects his circumstances rather than a recommendation for everyone. The point is simply to look beyond the label on an investment. Owning several different assets doesn’t automatically make you diversified if they are all exposed to the same market.
Australian shares can absolutely have a place in a portfolio. But Australia is only a small part of the global share market. For investors who already have plenty of exposure at home, looking beyond the ASX may be worth considering.
Prefer to listen? Find the full episode here.
If you enjoyed the episode, you can follow the Get Rich Slow Club and find Tash and Ana on Instagram at @tashinvests and @anakresina.
Disclaimer: This article is general in nature and has not taken into account your personal objectives, financial situation or needs. Pearler does not provide financial or tax advice. Before acting on any information here, consider its appropriateness to your circumstances and speak with a licensed financial adviser.
