Studies show that Australians suffer from a particularly acute case of home bias when it comes to share investing, typically allocating 50% or more of their equity portfolio to the domestic market. There are plenty of justifications for being overweight on domestic equities: familiarity with the economic and regulatory environment of the home market, easier and cheaper access, favourable tax treatments (e.g. franking credits), and the fact that Australia has had an unprecedented 30 year bull market.
But a strong home bias can mean opportunity costs and an overly concentrated portfolio can entail greater risk. When it comes to saving and investing for future retirement, having all of one’s eggs in one asset class is less than ideal.
Expand your investment universe to capture more opportunity
Global GDP currently is made up of approximately 33% from China, 33% from the US and 33% from Europe*, yet, the global benchmark index, the MSCI All Country World Net Index represents 3% from China, 63% from the US and 16% from Europe. A vastly different picture. When investing with Platinum, we don’t pay attention to how the index is invested; we look for individual opportunities at a company level and hence, you get a very different portfolio.
International equities provide exposure to markets with different economic, political and demographic profiles, not to mention a much larger universe of investable ideas, allowing investors the opportunity to invest in companies operating in countries with faster growth than the domestic Australian economy.
Diversification can mitigate many region-specific risks such as geopolitical events, economic cycles and monetary policies. A global portfolio also helps investors avoid over-exposure to the Australian dollar.