Geographic diversity of funds

Thrugelmir

Linton said:

Thrugelmir said:

lollynerd said:

Linton said:

JohnWinder said:

AnotherJoe said:

If you want diversity, spread across finance, energy, manufacturing blah blah whatever your chosen sectors are.

Or just forget about it and buy  global funds, perhaps top 1000 companies or whatever and then small companies. And maybe real estate if you want to diversify more.

One does diversify across sectors by owning cap weighted global index funds. One doesn't need to have 'chosen sectors' to be optimally diversified.

If one chooses to pick and choose which sectors or which regions to over- or under-weight then you've got a couple of questions to answer (to yourself): how will you decide to 'sell out of' or 'stay with' your strategy if it has underperformed a global index fund at your most recent review of your investment returns, or indeed if it has outperformed?; and secondly, what strategy will you use to decide whether, having 'sold out' (from a 'winning' or 'losing' position compared with the index fund), you will choose a different active strategy or go with indexing?

Or you have a long term allocation strategy and keep to it whatever the market does. I see no reason to believe that the market allocations are optimal for an individual small private investor with objectives very different to that of chasing short term gains which drives the global markets.

How can a portfolio be considered optimally diversified when 60% is allocated to one country and 10% is allocated to just 3 companies. Neither figure has any real world justification in terms of GDP, profits, or turnover.

Also, I don't have 10% invested in 3 companies. Maybe you were referring to someone else?

That's the portfolio concentration in some funds due to the market capitalisation of certain companies. 

Yes,  true.  Which is why I think that focussing solely on market capitalisation is not an ideal way of choosing the underlying investments for a portfolio.

Nor are indexes such as MSCI World as basic as they may appear.