Institutional Investors Agree On The Role Of Global Investments In A Well Diversified Investment Portfolio.
Ever wonder if they would agree with your investing strategy?
Global investments are an important way to add diversification... and opportunity... to your investing strategy.
I know this to be true because... the pros consistently invest internationally.
Who am I to question their wisdom?
Let me ask you...
Would the pros invest their money in an asset allocation
similar to yours?
As previously discussed on the asset allocation page of this site... the professional and institutional money managers all have one thing in common.
They are basically all in agreement as to how their assets should be allocated.
Each of their asset allocation models are for all practical purposes... the same.
When it comes to long term investing...
- These guys understand the importance of diversification.
- They see the futility of chasing the hottest stocks or mutual funds.
- They know the folly of trying to time the markets.
- Their asset allocation models exhibit broad diversity and balance.
And so... it is no coincidence... that they all include international or global investments in their investment mix.
International or non-US investments generally make up about 15 to 16 percent of the
asset allocation models of the professional and institutional money managers.
That said... let's now also consider the importance of being... regionally diversified... when it comes to your global investments.
Just as you should not have too many of your eggs invested in just one
or just one
So too... should you not have... too many eggs invested in just one region of the world.
Here is an example of the regional exposure a new client of mine had with her original investment portfolio.
|% of Stocks ||Portfolio % |
|North America ||94.43 |
|Latin America ||0.46 |
|United Kingdom ||0.62 |
|Europe-Developed ||2.81 |
|Europe-Emerging ||0.00 |
|Africa/Middle East ||0.07 |
|Japan ||0.50 |
|Australasia ||0.00 |
|Asia-Developed ||0.00 |
|Asia-Emerging ||1.12 |
As you can see... she was primarily invested in North America.
The key question is... how would an economic downturn in North America effect her portfolio?
And then... how much opportunity would she miss out on when Greater Europe or Greater Asia are booming?
My proposed portfolio for her provided a regional exposure as follows:
|% of Stocks ||Portfolio % |
|North America ||77.23 |
|Latin America ||0.71 |
|United Kingdom ||3.92 |
|Europe-Developed ||12.18 |
|Europe-Emerging ||0.18 |
|Africa/Middle East ||0.37 |
|Japan ||2.80 |
|Australasia ||0.58 |
|Asia-Developed ||1.79 |
|Asia-Emerging ||0.24 |
This portfolio would likely fare much better should the North American economy experience a major downturn.
At the same time... this allocation would be better positioned to benefit from economic growth and expansion in Greater Europe and/or Greater Asia.
So once again... you see... diversification is first and foremost about risk reduction.
Then it is about... greater opportunity potential.
Whether you are creating your own investment allocation or whether you are using a professional investment adviser to do that for you... it is very important that you are aware of and understand the
major elements that make up... and measure... true investment diversification.
Such knowledge will help you screen potential advisers in regard to their view of portfolio diversification and long term investing.
Finally... I defer my argument as to the importance of global investments to the best example for such... the asset allocation models of the professional and institutional investors themselves.
I can think of no credible basis for argument against "the big boys".
Such endorsement leaves little doubt as to the role global investments play in creating a truly diversified investment portfolio.
Who needs global investments? Perhaps you do!
"Because It Matters"... Jim
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