The case for diversifying internationally
We regularly hear the rule of thumb 'invest in what you know’, which may make it seem sensible to stick to Australian equities.
But did you know that the Australian equity market represents less than 2.5% of the global stock market capitalisation?1 And that it is heavily concentrated on only two sectors?
Broadening your investment horizon to international equities can open the doors to the potential to earn smoother and/or higher returns as well as other diversification benefits.
Australian equities represent less than 2.5% of the global stock market capitalisation,2 with thousands of international stocks, the opportunity really is too big to ignore.
Diversifying Internationally with ETFs
ETFs can be a highly effective way to tap into the growth potential of international equity markets, without the complexities of a direct investment.
One of the attractions of investing internationally via an ETF is the broad market exposure offered. This means you are not reliant on the performance of a handful of stocks, rather you have exposure to hundreds or even thousands of companies, some well-known, others not.
Investing internationally also does not necessarily mean higher expenses. Through an ETF, you can gain exposure to perhaps the most famous index of all, the S&P 500®, all at less than 1/10th of a percent management expense ratio (MER).
ETFs also bring a level of transparency that is arguably unmatched in the investment industry. On a daily basis, for many ETFs, you can see what the ETF holds and where the funds are invested.
With a range of international funds, SPDR ETFs allow you to tailor your exposure across the US, international equities, emerging markets and more:
ETFs provide arguably the most transparent, accessible and cost-effective way to construct portfolios.
ETFs: a Low Cost, Simple, and Tax Efficient Investment for SMSFs
Typically structured like managed funds, but listed and traded on an exchange like stocks, ETFs are flexible trading and investment vehicles that can be used to help the Self-Managed Superannuation Fund investor satisfy several critical investment needs.
Management Expense Ratio (MER): Fee paid to the manager of an investment fund. The MER is normally expressed as anannual percentage or "basis point" charge (where one basis point equals one hundredth of a percent) on the fund's net asset value.
1 Weight of Australia in MSCI ACWI was 2.41% as of 30 June 2019
2 Source: Factset as at 30 June 2019
3 Source: Morningstar Direct, Morningstar Research, as at 31 December 2018.