Taking the global route for your portfolio
Today, the global environment is wide open, brimming with exciting investment opportunities previously inaccessible to North Americans. The abundance of emerging global markets is a great incentive for expanding your investment horizons. An important point to keep in mind when considering whether to invest globally is that as much as you diversify your portfolio within the Canadian market, Canada represents only 3% of the global market capitalization. To completely ignore the opportunities of foreign investment, means limiting yourself to a minimal share of the market in its entirety.
Although many investors consider the idea of global investing with some trepidation, this is often because they anticipate a greater degree of risk. This is not necessarily the case. As with any investment decision, risk can be managed through proven strategies, such as diversification or asset allocation. Global investing, when undertaken with a certain degree of caution and knowledge, can be very beneficial to your overall portfolio performance. Diversifying internationally may actually help you reduce risk, because your portfolio is not concentrated in one country.
Why Invest Globally?&l;/>
Apart from reducing the effect of the vagaries of markets in a single economy by diversifying your portfolio, investing globally offers the investor a number of further advantages.
For instance, the investor can potentially increase overall returns by taking advantage of high growth economies. Developed markets on average are estimated to grow 2.71% from now to the year 2003, dull in comparison to the 5.8% estimated growth of emerging markets. (Source: Flemming, Investment)
As well, the investor can achieve greater diversification by having access to such a wide scope of markets. This gives the investor the opportunity to select companies in different positions within the growth cycle, ranging from emerging markets to well-established ones. For example, the automotive industry is well-established in North America, but is still relatively new in some markets. Global investing just gives you more choices; you can choose whether to invest in a mature company, like Ford, or in a younger company like Hyundai.
Access to international markets also gives you the opportunity to invest in industries that are not available domestically, such as the successful biotechnology industry. The number of blue chip companies outside North America has grown dramatically in the last 20 years.
Another advantage is that the global investor avoids relying solely on the domestic economy. World economies do not all work in “sync”. When a particular economy is in recession, it is inevitable that some other economies around the world will be simultaneously expanding, providing investing opportunities the prudent investor would not want to forgo. A strong performance in one country may help cushion your portfolio from a mediocre performance in another.
The potential to reduce short-term fluctuations is another attractive reason to consider investing globally. If your portfolio is made up of securities from different nations that are not influenced by the same variable, the chances of simultaneous portfolio declines are visibly reduced.
Due to complexities and sheer number of foreign markets, a degree of caution should be exercised when investing globally. In order to build a well-proportioned, strong global portfolio, it is advantageous to be familiar with foreign markets. The guidance of a Financial Consultant can be valuable when you are considering investing globally.
The simplest, most cost-effective way for a less seasoned foreign investor to participate in world markets is to invest in mutual funds. The most apparent advantage is that mutual funds offer you the benefit of expert management and advice from professional analysts with unique expertise in a particular market. With over 300 foreign funds available to Canadian investors including Bond Funds, Equity Funds and Emerging Market Funds, investors lacking the time or the expertise to properly manage a diversified global portfolio are still able to participate in both established and emerging global markets.
Globalization continues at an astonishing speed providing those want them with opportunities for unparalleled growth and prosperity, as well as with access to some of the world’s most profitable industries. Experience indicates that investing internationally presents tremendous opportunities for portfolio diversification, risk reduction and potentially superior returns. With the help of a Financial Consultant, you can take part in the wealth of opportunities that are available across the globe.
Financial Tips courtesy of Merril Lynch Canada Inc.
Merrill Lynch Canada Inc. is a member of the Canadian Investor Protection Fund.