Its Time To Diversify

Diversifying is relevant to every investor, and it is even more important if you reside in a developing nation, where fluctuations in local asset prices and exchange rates are often bigger than in developed markets. Most investors will agree that incorporating international assets can substantially increase the risk-reward of an investment portfolio, versus a strictly domestically-oriented one. Diversification is more than simply adding to return potential; we also caution that performance-chasing and putting all your eggs in one basket are strategies with a generally poor track record. A US-only or US-heavy approach could expose you to greater risk.

It's time to diversify globally - The size and persistence of the US stock market's outperformance since the global financial crisis has helped to create a growing number of headwinds that suggest that international stocks are due for a comeback. We see five key factors that will help globally diversified portfolios outperform US-heavy portfolios over the next few market cycles: 1. Valuations; 2. Profitability; 3. Growth; 4. Currency; and 5. Interest rate risk. Together, these five factors add up to a big difference in our expected long-term returns. UBS Capital Market Assumptions point to an annual return of 9.2% from international stocks, versus a 7.7% for US stocks over the next several market cycles. This outperformance can play out faster than you might think. Moving to a globally diversified asset allocation, in line with the market capitalization weights, can help investors maintain a very healthy allocation to US equities, while also tapping into a variety of global growth drivers.

Home sweet home? - In order to ensure smooth cash flow management and to maintain consistent growth to meet your family's long-term objectives, it is crucial to regularly assess how your total wealth is split across jurisdictions, the risks and opportunities involved in these markets, and whether your allocation unintentionally threatens your investment aims. The overarching goal of a well-designed financial plan is to help you achieve your goals and guard against risks. The UBS Wealth Way is a comprehensive approach that starts with questions and a discussion about what’s really important to you. The approach helps you organize your financial life into three key strategies: Liquidity — to help provide cash flow for short-term expenses, Longevity — for longer-term needs, and Legacy —for needs that go beyond your own. We discuss how an investor can address the risk that domestic political shocks could derail their investment success.