Lillailler's Investment Philosophy Part 2: Exceptions

[Lillailler]

There are two exceptions to my 'highly diversified hands-off' investment portfolio style as described recently.

The first exeption is 'home field advantage', which is to say I have more investments in the economy I live and work in than I 'should', if I went strictly by its share of the world economy - or more accurately the stock-market traded part of the world economy.

There are two reasons for this, neither exactly logical, and I wonder whether others share them?
Firstly, If the place where I live experiences an economic boom and share values rise, I want to share in the good times. I don't want to be the only one on the street not feeling smug about how much their retirement fund is growing. I know that doing this risks me being in the same boat if everything goes downhill in the country's economy, but somehow risking missing out on everyone's joy seems to hurt more than risking sharing everyone's misery. I sometimes justify this to myself as inoculation against envying my friends and neighbours.

Secondly, if there is a boom, I would expect prices to rise, and if my investments don't participate in the boom, then I will find the real value of my disposable income falling. My brain knows that asset values and consumer prices can move in different directions, and that asset prices can rise without dividends rising, but I still feel the urge to 'anchor' my portfolio with a good proportion of investments in my home market.

The second exception is when I have had access to an employee share purchase scheme with tax advantages. This was usually a matter of taking a bonus in shares instead of cash, with the bonus being exempt from income tax if the shares were held for a certain time (3 or 5 years IIRC). This exception seems perfectly logical to me, because the gain of avoiding 30 or 40% tax is enough to cover plenty of risk. There is also the issue that, if the company I work for is making lots of money for its shareholders, I would like a share of that too please! Owning some shares could be inoculation against envying the shareholders. However, I remember when Enron went bust, and a number of employees who had been encouraged to buy the company's shares lost both their jobs and their savings on the same day. Caveat emptor definitely applies in this case.

[distracted_at_work]

I completely agree with both exceptions. I dug up the rationale for home ownership bias you mention in Exception 1.
http://canadiancouchpotato.com/2012/05/ ... ake-sense/
Dan on Canadian Couch Potato does a much better job justifying it than I could.

I would hedge Exception 2 by limited a position to whatever the matching program is. For example if you are being salary matched 6% then your position in your own company should stay at 6%. Then be wary of what direction things are moving. Are there lots of new hires implying growth? Stagnation? Impending layoffs? Then adjust accordingly.