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Whether it’s shopping at a local market or eating at a nearby restaurant, many of us are naturally inclined to make selections close to our geographic familiarity. This can also be the case when making investment choices. Although investing in your home market may seem like the safe option, you could be concentrating your investments too much, leaving them exposed to the impact of localised events, while at the same time missing out on the opportunities to be found in the global marketplace.
This involves spreading your investments across different global regions. By not holding your money in a single country or region, you reduce the impact the negative performance of one entity can have on your overall investments. Geographical diversification can also give you access to developing countries that could offer greater potential for growth than in more developed economies.
As with geographical diversification, this involves spreading your money across different regions and accessing investments denominated in more than one currency. By having a range of different currencies in your portfolio, it will typically have less exposure to exchange rate risk than if you were only invested in one single foreign currency.
There are certain economic sectors that tend to be under-represented depending on which country you are in, or you might not even have exposure to them at all. Overseas markets can offer the potential to invest in ‘big name’ companies that have a global customer base with greater revenue opportunities than more local competitors.
For example, most of the biggest technology companies, such as Amazon, Netflix and Facebook, are based in the US. Or if we look in the food sector, household name Nestlé is based in Switzerland. The same can be seen in the high-tech manufacturing sector with global Japanese based players Hitachi and Sony. If you choose to only invest locally you miss out on the benefits companies like these could add to your portfolio.
This can be influenced by a number of factors, such as rate of economic growth and political stability. If your investment is spread between different regions across the world, it can lessen the impact negative performance in any one country’s stock market or single sector has on the value of your overall investment. As a result you should experience smoother returns over time.
It might feel more comfortable to invest within your home market as it is familiar and therefore seems safer. But as we’ve seen, by only investing locally you miss out on all of the opportunities the global markets have to offer. It also makes your investments vulnerable to localised market events and means you experience more volatile returns throughout your investment journey.
An easy way to access the global markets is through a multi-manager fund. These funds are made up of multiple underling managers who are specialists in their fields, focussing on one geographic region or asset class. They are expertly mixed together to give you a fully diversified solution that has the freedom to access the best investment opportunities available across the globe.
When you’re new to investing, getting started can seem like an uphill struggle. That’s why we decided to create a starter pack to help demystify the process and provide an introduction to the basics.
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A fund is a type of investment that enables multiple investors to collectively purchase securities, whilst retaining ownership and control of their shares. Similar to a listed company, a fund is owned collectively by its shareholders, with an investment objective and policy dictating what the fund manager purchases.
From year to year, it is difficult to predict which asset classes will be the best performers. Most investment specialists agree about the benefits of spreading your money across different investments. This diversification can reduce volatility, smooth out highs and lows in returns and help avoid unnecessary risk.
Only investing locally means missing out on opportunities offered by global markets. Better diversification, more investment options and reduced volatility are among some of the reasons investors should consider investing globally.
Both savings accounts and multi asset funds can offer benefits for investors. Over the long term, investing and saving can complement one another and potentially help towards achieving financial goals.
Instead of focusing on just one type of investment, multi-manager funds invest in lots of other single-focus funds. This can allow investors to choose a single fund that diversifies investments and combines the talents of many fund managers all in one.
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