How international should my investments be?
Shouldn't they at least be as well-travelled as you are?
Let’s flip that on its head and ask, how local should my investments be?
Take the stock market.
There are about 400 companies listed on the JSE.
Globally, the number of listed companies is north of 50,000.
Do you really want to limit your portfolio to such a tiny sliver of the available options?
Didn’t think so.
Internationalising your investments can ensure that your wealth is resilient to the shocks that may affect different markets in ways.
And the right partner can help you share in the growth of multiple economies in an increasingly connected global marketplace.
Is diversification for amateurs?
The answer depends on how you do it.
Warren Buffet once famously said, “Diversification is protection against ignorance.
It makes little sense if you know what you’re doing.”
Now, diversification may not have helped you much in the 2008 crash.
That’s because everything tanked.
Even gold wasn’t a safe harbour for long.
And quite frankly if China goes down there will be precious few places to hide.
But like a sailor on horseback, these examples are unusual.
In most circumstances, diversification is a solid approach to mitigate risk, as long as you aren’t doing it just for the sake of it.
Spread your risk; choose quality assets that’ll ride the wave set off by unforeseen market shocks in different ways.
And never ever back a pony just because it’s got a pretty name.
Do I back developed or emerging markets?
It all comes down to the assets.
Countries like the United States, Germany, and Japan are economic powerhouses and have yielded fine returns for the individual investor in recent years.
But none is without its problems, especially of late.
Germany, for example, is influenced by a common European currency, and Japan’s demographics have historically hampered its economic growth.
Who knows how an impending trade war with China will affect the old US of A.
On balance, though, emerging markets tend to be more sensitive to external shocks, and therefore riskier, but also hold out the promise of greater reward.
The risks are particularly acute in uncertain times when markets often tend to shift into a “risk-off” mode and money retreats to the perceived safe havens of developed markets and stable currencies.
But emerging markets are not all created equal.
A well-run emerging market country can be especially rewarding.
It’s just a question of assessing the risks in relation to the potential rewards.
Finding the right country is one thing.
Identifying quality assets, quite another.
Whatever your chosen approach, a lazy afternoon flipping between Bloomberg and CNBC isn’t going to cut it.
Make sure you’re taking advice from a trusted professional with an in-depth global perspective.
Does more data make us smarter investors?
Spoiler alert: probably not
In this age of information, we have more data available to us than ever before.
But data alone cannot guarantee good decision making.
In fact, data alone can’t take any decisions at all.
Decisions come from heuristics: the methods that we use, whether consciously or unconsciously, to filter out the noise, focus on what information really matters and figure out what to do with it.
Unfortunately (as a clutch of Nobel prize-winning economists will attest) we humans are notoriously bad at this bit.
Even when we think we’re acting rationally, we can still be swayed by unconscious biases that nudge us towards less than perfect decisions.
We tend to exaggerate the examples closest to hand, even when they’re statistically insignificant: my neighbour made a fortune off of bitcoin; my uncle smoked a pack a day and lived to a ripe old age.
That’s not data, it’s an anecdote.
Data is no panacea; but coupled with a partner who can distil it and use it to your advantage, it can be an immensely powerful asset.
Does more choice mean better investing?
Choices give us freedom. But that can be a scary prospect.
Choices are hard.
Typically, when making them, we rely on a combination of emotion and logic, too frequently giving the former more sway than we should.
Studies have shown that too much choice can see us rushing into poor decisions, or neglecting to make them at all, simply to avoid the hard work of assessing all the options.
Plus, as soon as we commit to one path, every path not taken is potentially a source of regret.
And let’s face it, kicking yourself is no fun at all.
For the individual investor, more choice doesn’t necessarily mean better decisions.
But it can.
Sometimes it just takes a partner who can work through the options, assess them, and arrive at a happy place you might never have got to alone.