International Portfolio Diversification
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International Portfolio Diversification
Explain three benefits of interantional portfolio diversification and provide three examples of global funds which have been able to use this concept to successfully invest.
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Explain three benefits of interantional portfolio diversification and provide three examples of global funds which have been able to use this concept to successfully invest.
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The major benefits for international portfolio diversification are:
1) Diversification of risks: Funds and investors diversify their risks by allocating their pool of investible funds between different countries and markets. There is a common saying that "do not put all your eggs in one basket" and this strategy exactly reflects this phenomenon. By diversifying their investments in various international markets, they hedge or protect themselves from high risks of investing in only one location, which is certainly not advisable in today's circumstances where dynamic changes are occuring in the business environment on a continuous basis, primarily due to factors such as terrorism, economic downturn, political unrest, etc.This is primarily the reason why global funds based in developed countries like USA are investing in international markets such as emerging nations like India and China.
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- MBA, Rochester Institute of Technology
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