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Your world, wide open
In the world of investments, the concept of diversification takes on an even more profound meaning if you think of it as “opening up your world.” Imagine your portfolio as a vast universe: each investment as a single star. Spending too much time focusing on the one little star limits your perspective of the whole, just as putting all your resources into one specific field/segment or national market restricts your financial potential and may expose you to unnecessary risks. Diversification enables you to broaden your horizons and open up your investment universe.
In this article, we provide some arguments for investment diversification – a strategy not only for mitigating risk, but one which can truly open up your world of investment opportunities. That means exploring new markets, optimizing returns and, thus, shielding your financial future from potential losses and unnecessary risks.
The threat of the national market “home bias”
One of the most common pitfalls of investment behavior is the “home bias” – investors’ apparent preference for investing in their home country. According to the International Monetary Fund (IMF), US investors have approximately 80% of their wealth in US-denominated assets – which equates to a strong overweight. This may be based on the perception that US equities have outperformed international counterparts over the last years, but it also disregards many opportunities outside of the US.
So why invest internationally?
Why invest in Switzerland?
Switzerland is a leading financial center for global private wealth. Its longstanding political stability, strong economy with low volatility levels and extremely well-regulated financial markets provides safety and security for investors who are looking to protect their wealth. Swiss banks also offer multi-currency accounts – dividend and interest payments are in the original currency and that eradicates the need to convert currencies.
“Switzerland has the only currency among the advanced economies that has appreciated in both nominal and real terms”
Source: Bank for International Settlement. The time horizon is since the Great Recession 2008.
The country’s position as a preeminent global financial hub with a well-developed banking system, backed by a competitive economy and favorable taxation conditions, offers an attractive environment for foreign investors. It also means that extensive international investment expertise is available as a matter of course. In addition, the Swiss franc (CHF) is a stable currency based on low government debt (it has the lowest debt ratio among the advanced economies, reflecting efficient government spending and government tax revenues), a culture of budgetary restraint, low interest rates and the country’s safe haven status.
Trust as a gauge of competitiveness
A study by the World Competitiveness Center of the University of Lucerne in Switzerland uses a range of criteria including e.g., economic performance, government efficiency, business efficiency and the infrastructure of the economy to gauge the state of competitiveness of a country. It ranks Switzerland among the top five. Switzerland is also a leader when it comes to the percentage of people who report having confidence in their national government.
“Don’t put all your eggs in one basket”
Diversification is a major concept of modern portfolio theory whereby a wide variety of investments with different characteristics to reduce exposure to volatility is targeted. That means diversification across asset classes and regions, industries, and sectors, represents a precondition for a potentially successful, risk-adjusted investment strategy. Using multiple asset classes can maximize expected returns at a given level of risk – or minimize risks for a given level of expected returns. Whereas diversification by no means provides a perfect investment framework – nor does it offer protection against absolute losses – it is a good starting point for avoiding cardinal errors such as “putting all your eggs in one basket” or following an exaggerated home bias.