49) Why Should You Invest Into Different Countries?

49) Why Should You Diversify Your Investments into Different Countries and Regions?

Different countries have different economic conditions. There are different government policies, investor strategies, resources, investment opportunities, residents’ mindsets, etc.

Thus, even during the same period, you will be able to see that the economic growths are all different for different countries. Different regions economies also performed differently.

Nearby countries within the same region affect one another more than the other regions.Certain countries affect more as the business partnership is more compared to another country.

So, if you had placed all your investments into one country, then your portfolio return is based on only one country. If that country economy and stocks performed very well, then your investment returns are very high.

On the contrary, if that one country economy is bad, the stocks also performed badly. So your portfolio will also give you a bad return. You may even have losses.

You must have heard on the old saying,

“Don’t put all your eggs into one basket.”

So, the old saying advised you to put them into different baskets. It will be even better if you also put the different baskets at different locations. 

With that same concept, it is better not to put your investment into only one country. Better to put into different locations, countries and regions.  

Investing into different countries also have foreign currency effect. If the foreign currency goes stronger against your currency, then you also gain on foreign exchange. But, if the opposite happens, meaning the your currency gets stronger, you can lose on the foreign exchange.

Diversification in Investment is important.

Let’s look at the different funds performances over the same period. They are represented by different Unit Trusts funds of different countries and regions.

Performance by different country funds from2012 to 2017.

Performance by different region funds.

You can notice that the performance graphs moves in different direction within the certain dates. One fund moves up, while the other moves down. It can be seen between the Global and Far East funds in 2015 period.

After some time, the direction changes. There are also certain times when all moved in the same direction.A good example is during the late 2015 (downtrend) and early 2017 (uptrend).

By diversifying your portfolio into many countries or regions funds, you had spread the risk and returns. You gain from regions which did better, and lower your loses from regions that did not do well. Your overall portfolio is less volatile if compared to only one region or country.

You had put the eggs into different baskets located at different countries.

Please note that the above graphs are for illustration purpose only. Past performance are not indication of future performance.

Please be reminded and be aware that all investments have risk. Do consult your professional investment and financial consultants.