Need to spread your investment risk? Maybe it’s time to look abroad
There are several options available to those seeking offshore exposure.
Spreading your portfolio’s risk is a sound, time‑tested investing principle, and this is likely what is sparking increased interest in investing offshore.
In most cases, global investing offers locals compelling benefits over a purely domestic or property‑based investing approach.
What exactly is offshore investing?
Offshore or global investing refers to placing your money in assets in a jurisdiction other than your country of residence.
It follows the same basic principles as ordinary investing, but with more options and opportunities.
In practice, global investing refers to a wide range of investment strategies that seek to capitalise on the many investment opportunities that lie outside the country in which you live.
Investing, in general, is a smart thing to do with your money. But what makes international exposure worthwhile for an ordinary citizen?
It all starts with diversification
There is only one free lunch (meaning a profit without loss) when it comes to investing – and that’s diversification.
This saying is often quoted because experts all know that diversifying is one of the most important things you can do to protect your wealth.
Head of Marketing at Discovery Invest, Jennifer Arendse explains that diversification is a cornerstone of long‑term investment strategy.
Adding that it essentially refers to spreading your risk by not putting all your eggs in one basket.
“It’s important to diversify your investments across different asset classes, such as equities (shares), bonds, property and cash. This will ensure that your risk is spread – so if one asset class performs poorly, the value of your other investments can make up for this,” says Arendse.
The exponential power of compound interest
There are many dynamics at play that can affect individual assets or classes of assets.
These are global pandemics to societal and cultural trends, downgrades in a country’s investment status, property or oil prices, import and export regulations, and natural disasters, to name a few.
The rise or collapse of a multinational and innovations or automation within a specific industry also have an impact on assets and assets classes.
“Because assets all perform differently under changing conditions or events, the goal is to achieve a balanced portfolio of assets that perform differently in response to differing conditions or events,” says Arendse.
“A properly diversified investment portfolio is far less at risk of poor performance or irreversible capital loss that may result from a myriad of factors that affect specific assets or asset classes.”
By smoothing out your returns and minimising your risk of losses from these events, diversification helps ensure that the magic of compounding can continue relatively uninterrupted.
And that’s the reason to invest globally
Investing globally is powerful because it can help you better diversify your portfolio across more assets, sectors, geographical markets, and currencies.
It also exposes your portfolio to a variety of exciting investment opportunities that you wouldn’t have access to in your own country.
Some people believe that global investing is a complex process or one reserved only for the rich and well‑connected.
But this is not the case – the world of global investing has never been more accessible to citizens seeking to spread their risk.
There are many options available to those seeking some offshore exposure, depending on your specific circumstances, needs and goals.
This article is not financial advice. Please consult with a financial adviser for financial advice.