How Does Familiarity Bias Affect Your Investments?

November 9, 2020
Choosing investments that are familiar can be comforting, but how can you choose more objectively?

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After you listen

  • Schwab has a range of investment advice options you can explore at schwab.com/advice.
  • You can also read more from Cooper Howard and Jeffrey Kleintop on Insights & Ideas, and you can follow Jeff on Twitter @JeffreyKleintop.
  • Schwab has a range of investment advice options you can explore at schwab.com/advice.
  • You can also read more from Cooper Howard and Jeffrey Kleintop on Insights & Ideas, and you can follow Jeff on Twitter @JeffreyKleintop.

It makes sense to have a certain level of familiarity with the securities we put in our portfolio. But just investing in familiar securities and products can blind us to other options that might benefit us.

In this episode, Mark Riepe explores the "home bias"—or the tendency to invest in stocks from one's home country—with Schwab's Chief Global Investment Strategist Jeffrey Kleintop. They discuss how global companies often have a similar footprint, how some countries act as proxies for certain sectors, and ways to avoid the home bias.

Next, Mark speaks with Cooper Howard, managing director for fixed income strategy at the Schwab Center for Financial Research. Cooper and Mark discuss how investors tend to over-invest in municipal bonds from their home state, or from bond issuers with which they are familiar. This is a tricky bias in the muni market because there are some tax incentives to invest in munis from one's home state. Cooper also explains some often-misunderstood characteristics of muni bonds and the bond markets.

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