Does owning a house in Canada mean lowering home bias in investments?

So let’s say you have $200k in equity tied up in a Canadian home and another $200k in the market. Should you reduce home bias in your portfolio below 30% since you’re already invested in Canadian real estate? Or is it best to keep it as if you had $400k just in the market?

I think that sounds pretty reasonable for a balanced and diversified portfolio. Might not make a huge difference, but tilting away from domestic and real estate holdings seems smart. Kind of like when people in the public sector reduce their home bias.

That said, it may not be worth overthinking this versus sticking with something simple like ‘XEQT/VEQT.’ Still, it’s a good topic for anyone interested in optimizing their portfolio.

No, I don’t think Canadian real estate is the same as Canadian stocks.

They’re different in terms of risk and growth potential, so I wouldn’t mess with the geographic allocation because of a house. If anything, I’d consider the equity in my home as part of the fixed income side of my portfolio rather than counting it as a Canadian investment.

For me, my home is more of a hedge against inflation and rent-related worries, rather than part of an investment strategy.

Personally, I wouldn’t consider my residence as Canadian market exposure. My house is my home, not an investment.

If you’re talking about additional properties that you rent out for income, then, yes, reducing Canadian exposure might make sense.

Depends on how tied to Canada you feel. If you’re sure you’ll stay here forever, maybe you don’t need to consider the home equity for currency risk. But if you think globally about your net worth and want to reduce CAD risk, then yes, it makes sense to adjust your Canadian stocks accordingly.

I’d say yes, especially if there’s any chance you might retire abroad.

To me, my house is a home, not an investment.

For my portfolio, it’s XEQT all the way.

Victoria said:
To me, my house is a home, not an investment.

For my portfolio, it’s XEQT all the way.

It’s still a significant asset, and its value is connected to the Canadian market. You might not always live there, so it’s worth considering in your overall portfolio.

@Milan
If you plan on living in Canada, the value of your home will generally correlate with your future housing or rent costs. It’s a different story if you plan to move elsewhere, though.

Dior said:
@Milan
If you plan on living in Canada, the value of your home will generally correlate with your future housing or rent costs. It’s a different story if you plan to move elsewhere, though.

I guess if you never plan to leave, never borrow against the home, and don’t care about the value when your heirs inherit it, then maybe the price doesn’t matter. But I think most people would feel otherwise.

@Milan
The question here is whether owning a home should change your asset allocation.

If you’re planning to stay in Canada, I’d say no. Not sure what your point has to do with that, though.

Dior said:
@Milan
The question here is whether owning a home should change your asset allocation.

If you’re planning to stay in Canada, I’d say no. Not sure what your point has to do with that, though.

I’m just saying that you generally want some diversification, and your real estate is part of your overall portfolio. How much it correlates with Canadian equities and fixed income is worth considering.

@Milan
I disagree with counting a primary residence as part of an investment portfolio. It doesn’t produce income and its value grows with inflation. It’s a personal hedge against rent increases, not a typical investment.

@Dior
A hedge is part of a portfolio. And owning a home means you’re basically saving on rent. Excluding it as an asset because it’s your current residence feels arbitrary, especially since that can change.

@Milan
If you want to call it an investment, go ahead, but it’s hedged against rental prices and meets a basic need, so it doesn’t need diversification in the same way. For a primary residence, especially if you’re planning to stay, I’d say leave it out.

Makes sense in theory, but realistically, if you’re in broad ETFs, just pick a comfortable home bias and stick to it. Until you have a lot more than $200k invested, it won’t be a big deal. The main thing is consistency in your allocations.

I’d only consider it if you plan to downsize or move out of the country to cash in on the home’s value.

I don’t think so. Your house isn’t liquid. What’s the plan if property values jump? Sell and move across the globe?

Reasons for home bias usually include tax benefits, better treatment for domestic investors, familiarity, and currency matching for expenses.

Whether you agree with these or not, I don’t think home ownership impacts them. Plus, the return on an individual home can vary based on location, so I’d say it’s more down to luck.

Yeah.