Joseph Wang Financial - How To Diversify Internationally
The Spanish stock market is one of the cheapest (in terms of transaction costs)
, efficient and transparent in the world. In addition, many Spanish companies are among the strongest and best managed in the world. It is therefore logical that a large part of capital of a Spanish investor is in the Spanish stock market.
It is reasonable to want to have a degree of geographical Diversification, seeking to diversify the risk of equity and / or increased profitability. Among the bags developed several possibilities. The most important are the Eurozone, the United Kingdom and the United States.
In the euro zone currency risk is not unlike what happens in the UK and U.S., where the investment performance depends not only on the listing companies we have in our portfolio, but also the value of the euro over the pound or the dollar. This does not make some areas better than others, but different. The currency risk can go against us but also presents significant opportunities, and achieve better long-term diversification, as both the pound and the dollar is strong currency. The pound normally has a fluctuation against the euro than the dollar, so in this aspect UK would be at an intermediate point between the eurozone and the U.S..
Traditionally the U.S. economy has a dinanismo and a growth rate higher than the UK and the euro zone. This is a point in favor of investment in the U.S., as the pace of earnings growth of their companies as a whole is superior to the British and euro zone.
The stock of the United States are the largest in the world. They are represented a number of companies and sectors than any other stock exchange. In America there are investment options that do not exist in any other stock exchange.
Thinking of international diversification practical ways to carry it out. For a retail investor is easier to understand and follow the evolution of business in their country than other countries. And the knowledge barrier must be added the time. To analyze companies takes time. Following the country's own business is affordable for anyone. It takes some time but not much and is fully compatible with any work or activity.
But if in addition analiar Spanish companies have to analyze the rest of the Eurozone, UK and U.S. and it gets tricky. It is very difficult for a standard person has time to properly analyze all these companies. And if you look bad the result is not reducing risk, which was what was intended, but be increased by investing in companies which have a very superficial knowledge.
Normally you have to find a compromise solution to diversify the portfolio geographically and not increase the risk:
If you want to invest outside of Spain will probably be limited to one of these areas. Or invest in the euro zone, or invested in the UK or investing in USA. And choosing one of these areas can not analyze all European or American companies. We will have to make a selection of them and get to know this group of companies, ignoring the rest.
Use ETFs or mutual funds : Considering the pros and cons of 3 alternatives I think you should try buying stocks instead of ETF's or mutual funds, but to invest outside their own country ETFs seem a good option to have into account even for investors accustomed to investing in shares for its advantages over mutual funds .
When thinking of diversifying geographically we must also take into account that there are many Spanish companies are already well diversified geographically. Investing in the Spanish stock market is not investing only in Spain because there are many companies, especially large ones, they already get more than half of its profit outside Spain. This allows investment in shares of companies that are well known and have a very important geographical diversification at a very low cost.
by: Joseph Wang
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