Diversification in asset allocation smooths volatility
Investors have a range of investment asset classes into which a portfolio can be invested. A Global Equities Asset Allocation has some special features that make it particularly interesting to Australian investors. Some of those features are common to any global asset class (including fixed income, property, or even ‘alternatives’).
Global equities tend to be more volatile than the other assets for most of the time; and become particularly interesting when the market Bulls and Bears face off around changes in the trend of market values.
Australian Bulls and the Bears face-off over global equities asset allocation.
A high-value Aussie dollar relative to other overseas currencies makes it more attractive for Australians to invest in overseas shares and, provided investors can cope with the volatility of financial markets, there are some significant opportunities available. A rising Aussie dollar generally weakens returns from overseas shares for local investors who had not hedged their investments before the rise in the dollar value got under way: the flipside to that detrimental effect of course, is that when our dollar heads back to its long-term average, those who buy whilst the exchange rate is strongly in favour of the AUD will experience a significant boost to their return in that cycle of the market.
Be warned though that investing globally, unhedged, can be costly and dangerous for those who don’t have the right knowledge or research backing their decision-making process. This is particularly the case when the other market is not with a significant trading partner for Australia.
There are several ways to make a global equities asset allocation: and for that matter, any investment assets in offshore jurisdictions. The most convenient for the majority of us is through managed funds (where your money is pooled with other investors and used to buy a range of shares in a region – or a sector by segmentation other than geographical). Professional advice from an experienced and reputable financial planner is highly recommended.
IF YOU ARE CONSIDERING GOING GLOBAL –
- Don’t spread your money too thinly if investing into ‘direct equities’. With trading costs starting at about $70, spending $1000 to buy an overseas stock means you will lose 7 per cent of your investment instantly.
- Investors with only a few thousand dollars to spend could perhaps look at exchange-traded funds or managed funds that spread money across a range of stocks.
- Be prepared for volatility in both share markets and currency markets. International shares should be a long-term investment.
- Diversify your portfolio of global shares, across different sectors and countries if possible.
- Tax becomes more complex. Dividends are not fully franked like in Australia and are usually a lower yield, reducing your potential returns.
- …and be aware that many Aussie companies – including BHP Billiton, CSL and Westfield Group – already offer wide international exposure.
How to secure your global equities asset allocation…
The experienced advisers at Continuum Financial Planners Pty Ltd work to a philosophy whereby – ‘we listen, we understand; and we have solutions’ to your wealth management needs, that we deliver in ‘personalised, professional advice’ that is documented and clearly discussed with you. Utilising our Investment Strategies your allocation to global securities, where applicable in your circumstances, can be secured with confidence that your future financial independence will be well addressed to optimise performance at no greater investment risk aversion than you indicate you are comfortable to bear.
To arrange a meeting with one of our team, call our office (on 07-34213456); or use the Contact Us page on our website – either way, your request will be courteously and promptly attended.
[Thought leadership: article from Courier Mail: 26 Feb 2012. Originally published in June 2012, it has been refreshed occasionally, most recently in September 2016.]
