Globalisation is an overused word. People have been using the word but not sure how it actually affects them in the real world. I would say our mindset is still very country centric and one good example is investment. How many of us actually have investments well diversified all around the world? I believe most of us invest in our own country more than the others. As my title suggests, what is the risk of focusing the investment in one country? Kenneth Fisher would like to expose the risk to you.
Below is the table (extracted from “The Only Three Questions that Count”) that ranks the country with the best returns for each year (from 1990 to 2005).
The glaring thing that Fisher is trying to show is NO ONE COUNTRY WILL CONTINUALLY LEAD IN RETURNS. Hence, by focusing an investment in one country, your returns will LAG the global benchmark. This means that person A who has a portfolio well diversified globally would have a higher chance of beating person B who focuses his investment in one country over the long run. One way to overcome this, as Fisher suggests, is to invest in a low-cost fund that tracks a global index like MSCI EAFE.
You may also like:
- Warren Buffett – "Risk comes from not knowing what you're doing."
- Barclays Investment Legend Fund
- Asset Allocation – How do you do it?
- The Winning Investment Habits of Warren Buffett & George Soros by Mark Tier
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