As an investor, it’s important to have some exposure to countries like China and India which are among the fastest growing world economies. These countries are growing at double or triple the rate of developed economies like the UK. If countries are experiencing fast growth, that can be good for their companies and their shares.
Different Countries Have Different Opportunities and Risks
It’s also important to include other developed countries in your portfolio, such as the countries of Europe which are on slightly different economic and electoral cycles to the UK, and also, America which has enjoyed one of the stronger recoveries from the last recession. And that’s not all, with over 200 countries in the world having some investments in Japan, Australia or South Africa as well as many other countries can prove helpful as well. This approach can lead to smooth returns as your returns aren’t dependent on a specific election result or any other country specific event.
This strategy called “diversification” doesn’t just help with elections, it also means that if there were an economic setback in the UK for whatever reason, you’d have greater protection from it with exposure to other countries.
Diversification Helps Your Sector Exposure
Also, the UK stock market tends to have a larger amount of certain types of companies such as banks, pharmaceutical firms and oil producers. By having a global portfolio, you can have exposure to other industries, whether tech companies like Facebook and Amazon or car manufacturers like Toyota. These industries are less represented in the British stock market and again, having different sorts of industries in your portfolio can help smooth your returns.
Investing abroad used to be complicated but now Exchange Traded Funds (ETFs) mean that even smaller investors can obtain global investments both inexpensively and easily.
Video: The Benefits of Diversification
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