Reap rewards of investing overseas

AUSTRALIANS are keen investors with more than 11 million of us holding investments outside of super.

That’s great news. What we’re not so good at is spreading our money across different assets – four out of 10 investors admit they don’t have a diversified portfolio.

In particular we tend to focus on local investments, yet there’s a whole world of opportunities beyond our shores. A recent report by the Australian Securities Exchange (ASX) shows our investments are typically heavily concentrated in Australian assets.

When it comes to shares, only one in 10 investors holds international shares.

That’s a shame because investing internationally is a great way to add diversity to a portfolio. Not only is our share market small by world standards, accounting for just 2% of the global market, it’s also heavily concentrated in the resource and financial sectors.

Along with diversity, international shares have

❝ investing overseas is a great way to add diversity to a portfolio.

the potential to deliver strong returns. The MSCI World Ex Australia Index, which measures gains on global sharemarkets, notched up five-year annualised returns of 10.77% to the end of April 2017.

This compares to annualised gains of 6.97% on Australian shares over the same period.

Technology has made it easier and cheaper than it used to be. Many online brokers offer international share trading, but while the cost has come down it’s still more expensive than buying local shares.

If you’re buying shares on markets outside the US, for instance, it can cost around $US40 – more than double the brokerage on Aussie shares. But there’s also a good selection of exchange traded funds with an international focus listed on the ASX.

These come with low fees, often just a fraction of a percent, and they can be bought and sold in much the same way as regular shares with the benefit of low brokerage.

Alternatively, unlisted global share funds are available through our large financial institutions.

These let you pick and choose the exact region, country or industry you’d like to invest in, with the fund manager making the day-to-day decisions about companies to invest in.

It can be a straightforward option for investing internationally, though do check the annual fees on global share funds. High fees will eat into your investment and are no guarantee of healthy returns.

Paul Clitheroe is a founding director of financial planning firm ipac, chairman of the Australian Government Financial Literacy Board and chief commentator for Money Magazine.