In today’s interconnected world, diversifying investments beyond local borders is not just a luxury but a strategic necessity. Filipino investors, from seasoned veterans to novices, stand to gain significantly by broadening their investment horizons globally. Here’s a comprehensive look at why incorporating international investments is a prudent strategy to enhance and protect your financial portfolio.
Broader diversification
One of the fundamental tenets of investing is diversification—the practice of spreading your investments across various assets to reduce risk. By including global investments, Filipinos can achieve a more robust diversification than if they limited their holdings to local assets. International markets operate under different economic conditions, which means they do not necessarily move in tandem with the Philippine market. For instance, while the local economy might be experiencing a downturn, other markets may be thriving. Investing globally allows Filipino investors to tap into these opportunities, potentially offsetting any domestic losses and reducing overall portfolio volatility.
Access to a wider range of opportunities
Global markets offer exposure to industries and sectors not available or are underrepresented in the Philippine market. For example, while the local market might offer limited options in technology or health-care stocks, markets like the U.S. boast of giants such as Apple, Amazon and Pfizer. Investing in these companies provides growth opportunities in cutting-edge technology and pharmaceuticals that are not as prevalent in the Philippines. This exposure is crucial not only for diversification but also for participating in global growth dynamics and innovations.
Benefit from economic growth in other regions
Emerging and developing markets sometimes offer higher growth rates compared to mature economies. By investing globally, Filipinos can benefit from these dynamics. Countries like Vietnam, India and others in the African continent are on rapid economic trajectory. By having stakes in these regions, investors can potentially reap the rewards from these markets’ accelerated economic advances, which may surpass local growth rates.
Mitigation of country-specific risks
Relying solely on domestic investments exposes an investor to risks specific to the political, economic and social landscape of the home country. Issues such as political instability, natural disasters and economic recessions can significantly impact the local market. Global investing spreads out these risks across different geographies, thereby mitigating the impact of adverse events in any single country. This strategy is crucial for preserving capital and ensuring steady growth in the face of unforeseen events.
Currency diversification
Investing internationally allows Filipino investors to benefit from potential currency appreciation. When investments are made in stronger currencies like the U.S. dollar, the euro, or the yen, Filipinos can gain from currency conversions if the Philippine peso depreciates relative to these currencies. Furthermore, earning returns in stronger currencies can provide a hedge against local currency weakness, enhancing the overall returns when converted back to pesos.
How to invest globally
For Filipino investors eager to start their global investment journey, several pathways are available:
1) Foreign exchange-traded funds (ETFs): ETFs are a popular choice as they offer a way to invest in broad market indices or specific sectors of foreign markets. They are relatively easy to understand, accessible and can be traded like stocks through many local and international brokerage accounts.
2) Mutual funds and unit investment trust funds (UITFs): Many Philippine banks and financial institutions offer mutual funds or UITFs that invest in international markets. These funds are managed by professionals who allocate and diversify investments across various countries and assets.
3) Direct stock investments: For those who prefer a hands-on approach, investing directly in foreign stocks is an option. Several international brokerages allow Filipinos to open accounts and trade stocks listed on global exchanges.
4) Real estate: Investing in real estate properties abroad can also be a form of global investment, providing both rental income and capital appreciation. However, this requires more significant capital and a deeper understanding of the foreign real estate market.
5) Cryptocurrencies and blockchain technology: As a newer and more volatile investment, cryptocurrencies and blockchain ventures offer a global investment avenue without the geographical constraints of traditional markets.
The case for including global investments in a Filipino investor’s portfolio is compelling. The benefits of diversification, access to different industries, mitigation of local risks and potential currency gains are just a few reasons to consider this strategy. As with any investment decision, it’s important to conduct thorough research and consider speaking to a financial advisor to align these global investment strategies with your financial goals and risk tolerance. The expansion into international markets can significantly contribute to achieving a stable and prosperous financial future. A final and friendly reminder: do not invest in something you do not understand. INQ
Join me and Chinkee Tan at this year’s most exciting finance and investment event, Piso Con 2024 this May 25 at Samsung Hall, SM Aura, Taguig City. We will also be joined by RJ Ledesma, Jayvee Badile, Enro Mendoza, Caleb Edpao and Jochell Quiñonez. Details at https://randelltiongson.com/pisocon-2024-with-chinkee-tan-and-randell-tiongson/ Randell Tiongson is a registered financial planner at RFP Philippines. To learn more about financial planning, attend the 107th RFP program this May 2024. Email info@rfp.ph or visit rfp.ph.