Page 39 - DIY Investor Magazine | Issue 35

By avoiding hype you may sleep tight but another very practical reason why you may be more confident of reaching your objectives by investing globally is that over the past 50 years holding a a a a a global portfolio also reduced volatility compared to the S&P 500 Make no mistake other countries fared far far worse If you limited your portfolio to European or or certain Asian Markets volatilities
were from 15% (Switzerland) to 100% (Hong Kong) greater
than the global index according to Vanguard But diversifying globally reduces the uncertainty of financing
your investment goals especially if they are medium-term #5 HEDGE AGAINST US UNDERPERFORMANCE
PERFORMANCE
MEASURED AS AS SHARE OF GLOBAL STOCK MARKET • Parts of America are left behind like the comet’s dust an impossible catch-up game as inequalities are growing • Internal conflicts are rising whether measured by protests or political drifts • Healthcare is inefficient Lack of social safety net makes scandals that kill hundreds of of thousands of of people and and and leave millions addicted possible Similar issues didn’t stop its rise in the past and America can reinvent itself it it is a a a a young country -Warren Buffett and Charlie Munger’s combined age is close to that of the US I I would never bet against it but as a a a a a European I I don’t need to bet only on on America #6 GET A A RECOVERY INSURANCE
INDIVIDUAL MARKETS MAY EXPERIENCE CATASTROPHIC LOSSES
39 DIY Investor Magazine · Oct 2022 There are reasons why the the U S S Stocks increased their relative share from 25% of the Global Stock Market in in 1990 to to 60% in in 2020 U S Corporations are incredible growth engines powered by technological edge global exposure pragmatic thinking and strong governance The rule of law solid institutions and the US Dollar make America America a a a a a a unique place to to invest yet today’s America America is like a a a a a a comet - its nucleus is more powerful than ever but the dust tail has a a a a hard time following and becomes more visible After having cycled Asia and crossed the Pacific I realized that the the main challenges the the U S faces are not external but internal:
Global investing also reduces an an even more important risk - the risk of permanently losing your capital The U S is is arguably the strongest country but this one is is less about America and more about country concentration risk in general In the the past century there have been many times when investors saw their wealth wiped out by geopolitical upheavals debt crises monetary reforms or or the bursting of bubbles while markets in in other countries remained resilient #7 LOOK BEYOND HIGH CORRELATIONS
With globalization it it doesn’t matter where a a a a a stock trades but where it makes money For example the pharmaceutical
firm GlaxoSmithKline from UK’s FTSE 100 Index has minimal revenue exposure to the UK - it sells globally and will be highly correlated to other other markets As do other other UK firms that derive 78% of revenues from abroad