One may ask, what does this matter, given the ease with which it’s now possible for everyday investors to buy into companies from all around the world? And diversification more than offsets the risks that come with investing overseas, the most pronounced of which – foreign exchange exposure – can be easily mitigated, as we explore on page 26, and can often work in investors’ favour. UK investors buying the S&P 500 five years ago, for example, would have enjoyed an extra boost to their sterling returns from the pound’s fall against the dollar.
Meanwhile, many – like Mr Bearbull in recent issues – have been actively looking for overseas exposure to offset the further weakening of the UK’s economic position – and therefore of sterling – that they believe the UK’s exit from the European Union will bring about. Even if you are not quite so pessimistic, this is still good practice; we should add parochialism to the long list of biases that get in the way of making sensible, rational investment decisions.
Indeed, while it is exciting that the London market could finally be about to see a listed carmaker in the form of Aston Martin, that doesn’t make it the carmaker you should invest in – if indeed you invest in any at all (our new recruit Phil Oakley has already shared some thoughts via his Twitter feed @PhilJOakley before he starts his new magazine column next week). Whether volume or luxury, car manufacture is and always will be an industry dependent upon huge upfront capital investments, and because of this not always best positioned to cope with swings in economic confidence or to take advantage of the opportunities to introduce disruptive business models that have enabled American tech giants to grow so rapidly.
Indeed, although diversifiying globally is one way of protecting your capital, future proofing it is arguably more important – and a much more difficult investing challenge, because it’s possible that the forces of creative destruction are accelerating, and those forces rarely respect national borders. There are some approaches you can take to mitigate against this, though, which we explore in both this week’s cover feature and stock screen – and, as Algy Hall discovers on page 48, plenty of investment opportunities at home, too.
