We review the cases for allocating to Australian companies and international investing, highlighting the diversification benefits from having exposure to companies earning revenues offshore, be they listed domestically or overseas.
A predicament which investors often find themselves in, surrounds the contentious topic of owning domestic versus international shares. On average, individual Australian investors only hold about 10- to 15% of their balanced portfolios in foreign companies, a surprisingly low amount given academic research and institutional investors guide towards an allocation roughly double that size.
So does this suggest that the average investor should significantly change the composition of their portfolio? Possibly. But this needs to be approached in a measured way, otherwise you run the risk of hurting performance, increasing risk, or both. The appropriate amount of offshore equities to hold depends on numerous factors and will not be the same for all investors. Getting a grasp on the appropriate mix however, requires one to first fully appreciate some of the key influencing factors, such as home country bias, franking credits, currency and diversification.
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