Familiarisation bias
‘Tendency to make decisions based on what is familiar ’
Far from breeding contempt as the saying goes, familiarity in behavioural economics can lead to a preference for UK stocks and shares, underpinned by an erroneous belief that they are less ‘risky’ (because they’re familiar). It’s important to guard against this and maintain an objective view of stock markets.
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Test your recommendations with external data.
For example, the UN report on ‘World Economic Situation Prospects’ shows that the UK has lower anticipated GDP growth than most other developed economies over the next year.
If your asset allocation suggests holding significantly more UK equities than say US or Eurozone equities this should sound warning bells (though you may hold a different view of the UK’s prospects or you may be looking at a longer time horizon).