The Importance of International exposure within Investments

Diversification is a fundamental principle of sound investment strategy, and one key way to achieve it is by incorporating international equity exposure into your investment portfolio. While domestic markets offer stability and familiarity, a well-rounded investment approach recognises the importance of tapping into global opportunities.

Over time, the world's stock markets have undergone significant transformations, reflecting changes in global economic dynamics. The rise of technology increased globalisation, and the emergence of new economic powerhouses has reshaped the investment landscape. The image below illustrates the evolution of the world’s stock markets and the drastic changes that can occur over time.

Historically, Australians have preferred investing funds domestically, emphasising a strong inclination to support and engage with our economy. This preference is often rooted in a sense of familiarity and understanding of the local market dynamics, regulations, and industries. While this inclination towards domestic investments promotes a feeling of economic resilience, it's essential for investors to balance this preference with the benefits of international diversification.

Studies have shown that incorporating international equities into a portfolio can enhance overall performance. However, the issue with developing a well-diversified portfolio comes with balancing the historical wants of Australians to invest domestically and the overarching stronghold the US currently have within the world stock market. Therefore, it is important to have a portfolio holding a balance of US Shares, international shares, Ex-US and Australian shares and with a variety of ETFs and Bonds for stability.

The importance of international equity exposure within an investment portfolio cannot be overstated. Diversifying comes with its own set of challenges, as with any investment decision. Contact us and speak to one of our financial advisers for personalised investment advice suited to your own goals and situation.