Understandably, many investors tend to want to keep their investments close to home - in sectors and companies they’re familiar with. While there are some benefits to this, it’s important not to neglect the benefits available from the larger global market.
Consider, for example, that Australia makes up only a little over 2% of the global investment market. If you invest exclusively in the Australian market, you’re exposing yourself to greater risk and missing a significant proportion of the potential investment return available to you.
Globally Diversified Assets
Asset allocation is generally regarded as one of the most important drivers of return variation. One of the core principles of asset allocation is that international assets should form part of your portfolio. It’s not enough to diversify only across different stocks, asset classes and themes; you should also consider diversifying across different global markets.
Australian shares certainly have some unique benefits. For many investors, the tax-effective dividends they pay are particularly attractive. However, these benefits need to be weighed against the potential risk of being over-exposed to a single market and the downside of missing a number of significant investment opportunities.
Key International Opportunities
Some of the most attractive investment opportunities are largely absent from the Australian market. The largest stocks on the ASX are heavily skewed towards banks, retail, and resource and energy companies. Internationally, some of the largest companies operate in the information technology, consumer staples and consumer discretionary sectors – sectors with limited representation on the ASX. Avoiding international assets prevents you from realising the opportunities presented by some of the biggest and most dynamic organisations in the world.
Deliberate Diversification
Make a point of understanding the benefits and costs of international investing. Owning assets directly is an option but is not always suitable for everybody. There are other options for achieving a globally-balanced portfolio for example managed funds, exchange traded funds and separately managed accounts. Your Morgan Stanley financial adviser can help you understand the principles of proper portfolio construction with multiple layers of diversification. Ask for recommendations regarding the most effective method of accessing international markets based on your personal circumstances.
IMPORTANT INFORMATION
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