I would turn that question on its head - do you have a good reason not to simply invest in all (or substantially all) publicly traded equities, regardless of where they are listed, in proportion to their market capitalisation?
So your reason for not investing in a global equity tracker is that you think the market consensus on the appropriate value to place on certain equities and/or currencies is wrong.
Fair enough.
Asset allocation by geography. How much does it matter?
Obviously keeping an anchor to the wind in terms of home currency is important. However, I come across critiques of portfolio construction in terms of how under or over weight they are in comparison to the MSCI World Index.
Surely the most important aspect of portfolio construction is owning good companies/funds regardless of geography?
If one has a diversified portfolio across sectors, market cap and geography why consider, for example, rebalancing to 60% US stocks just because that reflects total world market cap?
Did you know that at the time or do you just know it now with the benefit of hindsight?1. The market consensus on the value of tech shares was overly optimistic.
2. The market consensus on the value of Irish property was overly optimistic.
Did you know that at the time or do you just know it now with the benefit of hindsight?
You're right though - if you can consistently identify securities that have been mispriced by the market, you will become extremely wealthy over time. Of course, that is exceptionally difficult.
Or you could reach the opposite conclusion - if equity markets have become more correlated over time (due to globalisation), then an investor would have to be more (not less) geographically diversified to achieve the same diversification impact that a lower allocation to non-domestic equities would have achieved in the past.If this is the case, then geographical diversity shouldn't need to be as big a priority than in the past.
Ok but without the benefit of a time machine there's no way I can benefit from that truism.Investment via the perceived wisdom of crowds doesn’t always bear fruit.
Sure but that's a very big "if"!If you can identify securities (or managers that can identify securities) that have been mispriced by the market and/or have potential to grow exponentially over time, you should increase your wealth over the long term with regular investment.
Sure but that's a very big "if"!
I don't have any confidence in my ability to identify misprced securities (or to pick managers with this ability) so I don't even try.
Or you could reach the opposite conclusion - if equity markets have become more correlated over time (due to globalisation), then an investor would have to be more (not less) geographically diversified to achieve the same diversification impact that a lower allocation to non-domestic equities would have achieved in the past.
I'm not sure I really understand what your point is here.Granted, it is a big ‘if’. However in Euros, the MSCI World Index has returned 3.86% annualised since December 2000. Coupled with the backward tax treatment of ETF’s in Ireland. Can you afford not to say ‘if’?
Well, my objective is to be as diversified as possible across global stocks because I've no idea what companies, sectors or regions will succeed in the future.It depends on what your objective is. I would say minimising expected volatility.
Well, my objective is to be as diversified as possible across global stocks because I've no idea what companies, sectors or regions will succeed in the future.
If you take that attitude you might as well save yourself the hassle and just buy one stock!
The performance of an asset class cannot be predicted, but it is reasonable to assume that correlations (negative or positive) between certain asset classes will hold.
To simplify, try to buy assets that tend to rise when other parts of your portfolio tend to fall, and vice versa.
I don't follow - how would owning a single stock meet my objective of achieving maximum diversification?If you take that attitude you might as well save yourself the hassle and just buy one stock!
What???!If you have no idea what will succeed, and your only criterion is success, then one stock is as good as a basket.
Buying the whole world in equal weight doesn't minimise risk per se.
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