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Globalisation is an overused word. People have been using the word but not sure how it actually affects them in the real world. I would say our mindset is still very country centric and one good example is investment. How many of us actually have investments well diversified all around the world? I believe most of us invest in our own country more than the others. As my title suggests, what is the risk of focusing the investment in one country? Kenneth Fisher would like to expose the risk to you.
Below is the table (extracted from “The Only Three Questions that Count”) that ranks the country with the best returns for each year (from 1990 to 2005).
The glaring thing that Fisher is trying to show is NO ONE COUNTRY WILL CONTINUALLY LEAD IN RETURNS. Hence, by focusing an investment in one country, your returns will LAG the global benchmark. This means that person A who has a portfolio well diversified globally would have a higher chance of beating person B who focuses his investment in one country over the long run. One way to overcome this, as Fisher suggests, is to invest in a low-cost fund that tracks a global index like MSCI EAFE.
Alvin, I fully agree with you.
No country can remain in the lead continuously.
Japan stagnated, US buckled & Eurozone is in trouble.
However, I wish to contextualize this a bit.
The interesting thing about investing is that both "focus" & "diversification" can be correct strategies. Eventually it boils down to risk vs reward, the profile of the investor & how he applies financial knowledge.
Overall I feel that Asia region (ex Japan) in general still has growth potential. Investing in Singapore has advantage in familiarity & access to information.
It would be difficult to invest in other regions or globally unless one has access to reliable information about those areas. Otherwise, investing without sufficient knowledge is in itself rather risky, in my opinion.
For small investors, I believe there is some money to be made within SGX. For large capitalists, I fully agree it is probably better to look global.
In Kenneth Fisher's context, he has a good team of analysts & serves a clientele of institutional investors globally. Inevitably, he has to source for the best investment options across the world.
I also observed that there is an increasing spread of "investment options" available to retail investors in Singapore in recent years. These do provide some diversification from stocks (asset class) & from SG (region).
eg. Land Banking, Fine Wine, Property (outside SG), Gold
But each of these require careful study before putting money in.
For new investors, I would sincerely suggest a T-shaped approach.
Start by focusing deep in 1 area (eg. stocks on SGX), then slowly develop a broad base by looking at other asset classes & other regions.
For those who would like to look at historical price charts of indexes, I find the below tool provided by Fundsupermart very useful.
(http://www.fundsupermart.com/main/fundi ... witch.svdo)
(From the homepage, go to Funds Info - Chart Center)
