Is it Time to Expand our Investment Horizons?

Is it Time to Expand our Investment Horizons?

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Diversity and International Equity Asset Allocation

 

Broadly speaking, I feel investors are increasingly willing and comfortable with the idea of investing portions of their capital overseas, both to capture opportunities unavailable locally and also to defray risks of being overly concentrated in the Australian sharemarket.

 

Recent months have provided ample demonstration to local investors of the significant concentration of portfolios in Australian interest-rate sensitive stocks like banks, and the inherent tie that stocks like banks have to household wealth by way of residential property prices.

 

My video below explains why we see international equity and in particular asset allocation diversification an important discussion to have with clients regarding their investment options.

 

Why Prime sees international equity and asset class diversification an important part of a client’s portfolio? from Prime Financial Group on Vimeo.

 

How do you balance offshore asset allocation against a natural bias for local exposure?

 

How do you balance offshore asset allocation against a natural bias for local exposure? from Prime Financial Group on Vimeo.

 

To put international investments in a context, there will always be a home bias for investors. Comfort and familiarity are an important factor in why people tend to invest close to home, as is the simple common sense of matching one’s assets with liabilities.

 

Arguably the home bias in Australia is an even greater one than in many other countries because of the inherent tax advantages for local investors embedded in our tax and superannuation system.

 

But for reasons of both diversity and the potential for greater returns,it makes complete sense for investors to allocate a growing portion of their funds to international investment markets.

 

Australia contributes a shade over 2% of global economic output, and comprises a little under 2% of total share-market value. Yet we hold the 4th largest pool of superannuation funds.

 

I tend to think of superannuation and savings here as a man-made resource, and one that should be exported globally. 

 

Investing all these funds in such a narrow and concentrated market such as Australia carries with it added risks, and reduces the potential for greater returns from industries, countries and opportunities that are absent locally.

 

Investing beyond Australian asset markets provides a portfolio with geographic and economic diversity and access to growth opportunities and business models not available locally.

 

In simple terms, EQUITY is the predominant GROWTH asset in most portfolios. Exposing one’s portfolio to more diversified sources of growth means portfolios really should include an international equity element.

 

Please feel free to VIEW or DOWNLOAD a recent presentation made summarising our position on diversity and international asset allocation:

 

 

Disclaimer: The information contained in this presentation is for informational purposes only and is not intended to be exhaustive or complete. This information does NOT constitute financial advice and should NOT serve as the basis for any decision by you. The information does not take into account the objectives and circumstances of the individual investor and we recommend that you consult a financial adviser should you have questions regarding the information contained in this presentation.

 

If you would like to discuss Diversification & International Equity Asset Allocation with me:

 

About the Author:

As the Chief Investment Officer (CIO) for Prime Financial Group, I work closely with the national advisory team, high net worth individuals, family groups and Prime’s broader accounting network to provide considered and pro-active investment advice.