Global diversification benefits are back in a big way

28th July, 2017

Highlights:

We’re living through an era of unprecedented global economic synergy.
While the overall global trend is up, markets are not moving in tandem with one another making the risk-reducing benefits of diversification even more attractive.
Potential risk in emerging markets and bull market pullbacks may be adequately hedged through a global diversification strategy.

According to Jeff Kleintrop at Charles Schwab, for the last 20 years markets have tended to move in tandem as U.S. focused events such as the tech boom and housing bust in the 2000’s created ripple effects in other markets.

Global diversified strategies provide risk-reducing benefits

Kleintrop argues that correlations in major markets have retreated to levels not seen since 1997, which is great news for savvy investors. In short, some of today’s most lucrative investment opportunities are overseas, and global diversification also provides a way to hedge risk from the volatility in your home market.

In his words, “The return to the lower average correlation across stock markets not seen in 20 years has the potential to offer globally diversified investors the benefit of less volatility without hampering returns on the path to financial goals—in essence decreasing risk without decreasing return.”

Ready to go global?

If you’re keen to get started in the global equities market, you can use providers like Stake to easily begin dabbling abroad. If you’re a more sophisticated investor, you probably already know that foreign exchange rates are critical to maximising your returns.

You’re probably also aware that converting money with the banks means paying hefty margins when you’re selling assets. To keep more of your hard-earned profits, use OFX to convert your funds, so you can save substantially 75% on those unnecessary costs.

To learn more about investing overseas, check out the OFX guide to managing your investments abroad.

*Average savings based on published rates of ANZ, Westpac, NAB and CBA on a single transfer of AUD$10,000 to USD between 21.2.17 and 2.3.17. Transaction costs excluded. Quoted savings are not indicative of future savings.