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How should residents of smaller economies allocate their portfolio between domestic and foreign assets?
why should I have any bias in favour of my local economy? The main reason is because your expenses are in the local currency.   If you are planning on spending most of your money on foreign travel, that's one thing.  But for most of us, the bulk of our expenses are incurred locally.  So it makes sense for us to invest in things where the investment return is local.   You might argue that you can always exchange foreign results into local currency, and that's true.  But then you have two risks.  One risk you'll have anywhere:  your investments may go down.  The other risk with a foreign investment is that the currency may lose value relative to your currency.  If that happens, even a good performing investment can go down in terms of what it can return to you.  That fund denominated in your currency is really doing these conversions behind the scenes.   Unless the bulk of your purchases are from imports and have prices that fluctuate with your currency, you will probably be better off in local investments.  As a rough rule of thumb, your country's import percentage is a good estimate of how much you should invest globally.  That looks to be about 20% for Australia.  So consider something like 50% local stocks, 20% local bonds, 15% foreign stocks, 5% foreign bonds, and 10% local cash.  That will insulate you a bit from a weak local currency while not leaving you out to dry with a strong local currency.   It's possible that your particular expenses might be more (or less) vulnerable to foreign price fluctuations than the typical.  But hopefully this gives you a starting point until you can come up with a way of estimating your personal vulnerability.