Australians are keen investors with over 11 million of us holding investments outside of super. That’s great news! What we’re not so good at is spreading our money across different assets, and four out of ten investors admit they don’t have a diversified portfolio. In particular, we tend to focus on local investments yet there’s a whole world of opportunities beyond our shores.
A recent report by the Australian Securities Exchange (ASX) shows we’re generally very comfortable investing in the basics like cash, shares and of course, rental properties. But our investments are heavily concentrated in Australian assets. When it comes to shares, only one in ten investors hold international shares.
That’s a shame because investing internationally is a great way to add diversity to a portfolio. Not only is our sharemarket small by world standards, accounting for just 2% of the global market, it’s also heavily concentrated in the resource and financial sectors.
Along with diversity, international shares have the potential to deliver strong returns. The MSCI World Ex Australia Index, which measures gains on global sharemarkets, notched up 5-year annualised returns of 10.77% to the end of April 2017. This compares to annualised gains of 6.97% on Australian shares over the same period.
Investing in global sharemarkets may sound daunting but technology has made it far easier and cheaper than it used to be.
A number of online brokers offer international share trading, and while the cost has come down it’s still more expensive than buying local shares. If you’re buying shares on markets outside the United States for instance, it can cost around $US40 – more than double the brokerage on Aussie shares.
The thing is, adding one or two big overseas companies to your portfolio isn’t really beefing up diversity. And let’s face it, not many of us know much about which companies in Poland, Brazil or China are worth investing in which is why, for my money, it makes sense to use an international share fund.
There’s a good selection of exchange traded funds (ETFs) with an international focus listed on the ASX. These come with very low fees, often just a fraction of a percent, and they can be bought and sold in much the same way as regular shares with the benefit of low brokerage.
Alternatively, unlisted global share funds are available through our large financial institutions. These let you pick and choose the exact region, country or industry you’d like to invest in, with the fund manager making the day to day decisions about companies to invest in. It can be a straightforward option for investing internationally, though do check the annual fees on global share funds. High fees will eat into your investment, and they are no guarantee of healthy returns.
Paul Clitheroe is a founding director of financial planning firm ipac, Chairman of the Australian Government Financial Literacy Board and chief commentator for Money Magazine.
Grasping market movements
Our free online learning module gives you an overview of how market fluctuations can impact your investments.
The renewed weakness in share markets has taken them back to recent lows.