The benefits of international diversification
By investing in assets outside of South Africa, you can benefit from international diversification.
The advantage of diversification comes from investing in assets that have unrelated returns. And when you look to international diversification, you benefit from the low correlations between the returns of different countries.
Researchers at Goldman Sachs found that one of the most important aspects of diversification is holdings offshore investments
. It reduces your overall portfolio risk.
By looking to add offshore investments to your portfolio, you avoid the problem of concentrated equity markets.
How to benefit from your offshore investments
To benefit from investing offshore, you don’t have to invest in every market out there. Holding some investments in a small number of foreign countries should suffice.
You want to concentrate your investments in countries with transparent market structures.
Then you need to select what financial instrument to opt for. One way to do this is to choose passive portfolios. These include index funds, passive unit trusts and index futures.
How to get the most out of your offshore investments
Look to markets which aren’t similar to the South African market. For instance, don’t look to invest in a market that is heavily weighted towards resources. It’s more likely to mirror the performance of the South African market.
You want to look for markets that consist of different core holdings to your own.
So there you have it. The benefits of making offshore investments.
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