THERE might come a time, perhaps a century or two from now, when diligent investors will scour not just Earth but other population centres in the solar system like the Moon, Mars and our mining colonies in the asteroid belt for great businesses to invest in. For now, however, things are much easier because all the investing we do is limited to ventures founded, established and run on Earth.
That makes things easier today than they will be tomorrow when humanity’s investment universe will be larger. Yet we still have a lot of work to do in 2016 if we wish to prosper.
In my last two columns I have explored the investment-related ramifications of advice my 93-year-old mother gave me more than 45 years ago while produce shopping in the Seremban wet market: “Don’t put all your eggs in one basket!”
Last week’s column focused on investment diversification across different asset classes (cash, fixed income, equities, investment real estate, and alternative investments, which include commodities and derivatives). Today we will consider the importance of diversifying across geographic regions.
The hammering the Malaysian economy has experienced over last year because of internal missteps and external difficulties makes it clear that wise Malaysian investors should not restrict their investments to our shores. Of course, there have been other times in the past and there will be again in the future, when the external investment
environment is lousy and the intrinsic defensiveness of the Malaysian economy will be appreciated by all who understand that we will need our investment portfolios to pay our inflated bills in the decades ahead.
Successful investing hinges on riding the ups and downs of different investment markets; but before I list down the geographic regions for you to research so that you may expand your investment frontiers, you must understand and then internalise three truths:
ASSETS rise in price when capital flows into them and asset prices fall when capital flows out from them;
CAPITAL flows are fickle; but
MONEY must flow somewhere on our planet!
In the eight or nine years since the unparalleled economic stresses of the global financial crisis, the volume of cash in the world has grown faster than at any other time in history. This creation of cash — out of thin air backed only by confidence in the issuing governments — has seen an explosion of the United States dollars, euros, yen and British pounds. And, through the ever present mechanism of foreign exchange, minor currencies like the ringgit, rupiah, peso, Aussie dollar, Singapore dollar, won, New Taiwan dollar, kroner, dong and others, have experienced massive expansions in money supply.
Bottom line: There is a lot of money sloshing around our planet. This money must flow somewhere!
Sadly, we don’t know where the next tsunami of global capital will move to or where it will leave in a hurry. In the absence of such information, our best move is to diversify our investments across different geographic regions.
Over the last years the bloom has come off the roses of emerging markets, including Malaysia! Even in most developed markets, conditions remain challenging. The one bright spot, for now, appears to be the US. But things can change swiftly. That is why I advise you to take a hard look at your portfolio and, first, figure out how to gain exposure to countries with large populations such as China, India, the US and Indonesia.
Second, consider major regions such as North America, Asia, Asean, Latin America, Africa, the Middle East, developed Europe, emerging Europe, and Australasia.
I am NOT suggesting you invest equally in all those different regions. But please push out of your comfort zone by exercising due diligence to extend — perhaps over the next two years — the geographic spread of your portfolio so that in the coming decades you will be better positioned to profit from ever-flowing capital currents. Safe “travels”!
The writer can be reached at rajen@RajenDevedason.com and via Twitter: @RajenDevadason
The writer is a Securities Commission-licensed financial planner, professional speaker and author. Read his free articles at www.FreeCoolArticles.com. He may be connected with on LinkedIn at https: //www.linkedin.com/in/rajendevadason