International Diversification Works (Eventually)

摘要

Critics of international diversification observe that it does not protect investors against short-term market crashes because markets become more correlated during downturns. Although true, this observation misses the big picture. Over longer horizons, underlying economic growth matters more than short-lived panics with respect to returns, and international diversification does an excellent job of protecting investors. Portfolio diversification is one of the most fundamental and important tenets of modern finance. In the context of global investing and under some very basic assumptions, diversification implies that a portfolio of global equity markets should produce a risk-adjusted return superior to that of any one country held in isolation. Yet, eschewing what is often called the only free lunch in finance, most investors continue to hold portfolios that are either fully or heavily weighted toward domestic securities: the famous home bias.1