Fri 27 Jan 2006
You should be investing a bit of that money globally
Quote: “Because countries vary within their economic cycles, world equity markets perform differently in any given year. The U.S. has not been the leading performer in any of the preceding 15 years.
An investor who doesn’t invest globally could be limiting his returns over the short term as well as the longer term. In addition, it has been proven that investing in a globally diverse equity portfolio will reduce risk and enhance returns.
For example, in 2005, an investor with positions in the developed international markets index and emerging markets index would have realized returns of 13 percent and 34 percent, respectively, compared with a 4 percent return from the S&P 500.”
Investing only in domestic stock limits the chance of making “par” return
Quote: “In simple terms, if you flip a coin 500 times approximately 50 percent of the time you will get heads. If you lower your sample size to five, your outcome will not be 50 percent. It will be considerably higher or lower with equally probable potential.
You have a lot less certainty of your outcome with the five flips, with no higher potential of getting more heads than tails.
With all other things being equal, the smaller sample size takes on more risk without increasing their probability of return.”