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. This space becomes more interesting when the market Bulls and Bears face off around changes in market value trends.
Australian Bulls and the Bears face-off over global equities asset allocation.
A high-value Aussie dollar (AUD) relative to other overseas currencies makes it attractive for Australians to invest in overseas shares. Provided such investors can cope with the volatility of financial markets, there are some significant opportunities available. A rising AUD weakens returns from overseas shares for Australian investors who were unhedged ahead of the rise. There is a flipside to that detrimental effect of course. The converse holds true of course. As AUD resumes a climb, investments made during a favourable exchange rate period will experience a significant boost in returns during that cycle of the market.
Investors need to be aware that investing globally, unhedged, can be costly and dangerous. The risks can be mitigated with right knowledge and research backing the decision-making process. This is particularly the case when the chosen market is not with a significant trading partner for Australia.
There are several ways to make a global equities asset allocation. The most convenient for the majority of us is through managed funds. Using this structure, your money is pooled with other investors and used to buy a range of shares, either –
- in a region – or
- a sector by segmentation other than geographical.
There are managed funds that provide opportunities for investment in a broad range of assets in offshore jurisdictions. 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
- at your convenience, use the linked Book A Meeting facility.
(This article was originally published by us in June 2012. It has occasionally been refreshed/ updated, most recently in January 2025.)
