There is no such thing as an average investor. Investing behaviours differ widely by market—in investors’ willingness to take risk, choice of investment products, prevalence of home bias, or the importance of sustainability in investment selection.
These are the findings of Morningstar’s Global Investor Portfolio Study that spans over 14 key wealth markets.
Retirement systems drive differences in risk tolerance.
In markets where the workplace retirement system is built around individual defined-contribution accounts, individuals become accustomed to taking market risk early in their careers, and this tends to make them more at ease with market volatility. Investors in these countries also tend to build or be defaulted into more-aggressive portfolios with higher equity weightings and lesser bond and cash exposure.
Examples: Australia, New Zealand, the U.K.
Markets with defined-benefit schemes and, in some cases, supported by universal healthcare and a comprehensive social security net, show a reduced need for self-reliance. Investors in these markets are typically more conservative and take lesser equity market risk in portfolios, as they don’t feel a strong need to withstand market volatility. In these markets, individuals tend to start investing later, if at all, and they also have fewer assets to invest after payments for taxes, social security, and pensions.
Examples: France, Germany, Japan.
Asian investors tend toward stocks.
The wave toward defined-contribution retirement accounts has also had an effect on the popularity of investment options, propelling mutual funds to become the dominant investment vehicle. This is the case with the 401(k) in the U.S., KiwiSaver in New Zealand, and superannuation in Australia.
But there are many markets in which mutual funds play second fiddle. In Asia, direct equities are the preferred choice for taking risk, followed by a variety of products. For example:
- Hong Konginvestors often utilize foreign exchange,
- Japanese portfolios tend to feature annuities,
- Chinese portfolios often include wealth management products, and
- Indian investors rely more on fixed-income investments and annuities before funds.
In Europe, different types of cash and fixed-income investments as well as insurance products feature often in portfolios.
Globally, real estate plays a meaningful role and typically makes up the biggest part of nonfinancial asset wealth.
It is the primary reason investors take on meaningful debt, especially in markets such as Australia, Canada, China, Hong Kong, and New Zealand.
European investors tend to prefer building wealth through real estate rather than through financial market risk.
In India, nonfinancial investments such as real estate and gold—often in physical form—trump stocks and funds in popularity.
China and India have the largest home bias.
One common factor across the countries we analysed is that investors prefer to invest close to home. Home-market bias is also driven by accessibility and the need to avoid currency risk, but countries’ level of home bias varied.
U.S. investors do favour local stocks, but the difference to the world index is smaller due to the country’s high weight in global markets. At the other extreme are countries like China and India, where capital controls nudge people to invest almost exclusively in the home market, whilst their index weight is small.
Investor-focused advice plays a key role in risk tolerance.
While multiple factors influence the differences in portfolio-building habits, one thing is consistent among the more risk-tolerant markets: a more portfolio-driven approach to financial advice.
This includes markets like Australia, Canada, New Zealand, the U.K, and the U.S., where advice starts more often from a strategic asset-allocation perspective rather than the suitability assessment of individual investment products. This broader perspective helps investors to understand whether their total risk is appropriate for the returns that their financial goals require.
Access the report here.