Pursuing a Better Investment Experience – Decision 6: Consider Smart Diversification

Many people concentrate their investment in their home stock market. They choose only US stocks and mutual funds and consider their portfolio diversified. In some cases, they only hold a small group of securities.

Yet, from a global perspective, limiting one’s investment universe to a handful of stocks, or even one stock market, is a concentrated strategy with possible risk and return implications.

The graphs below offer a conceptual comparison of investing only in the US market, as represented by the S&P 500 Index, and structuring a globally diversified portfolio that holds assets in markets around the world, as represented by the MSCI All Country World Index (IMI). For the global portfolio, holding over 8,600 stocks in 46 countries broadens one’s investment universe.

global diversification


Diversification helps reduce risks that have no expected return, but diversifying within your home market is not enough. A diversified portfolio should expand the investment universe and hold multiple asset classes that represent different market areas across the world.

Number of holdings for the S&P 500 and MSCI All Country World Index—Investable Market Index (MSCI ACWI IMI) as of December 31, 2015. Indices are not available for direct investment and their performance does not reflect the expenses associated with the management of an actual portfolio. International investing involves special risks such as currency fluctuation and political instability. Investing in emerging markets may accentuate these risks. Past performance is not a guarantee of future results. Diversification neither ensures a profit nor guarantees against loss in a declining market. The S&P data are provided by Standard & Poor’s Index Services Group. MSCI data © MSCI 2016, all rights reserved.