Geographical diversification is the practice of diversifying an investment portfolio across different geographic regions in order to reduce the overall risk and improve returns.
This method can be used by both private investors and companies to limit and manage risk. Firms are able to lower their risk exposure to political and economic changes and "forces majeures" by locating particular departments and/or resources in different parts of the world. If one of the company’s assets is located in a region more vulnerable to change (tsunami, earthquake, revolution, riots) the parts located in other areas may compensate and provide balance.
Since the cycles that drive business and investment are experienced at different times in different countries, foreign markets seldom move in perfect tandem with each other. Losses in one market may be offset by gains in another. Geographical diversification significantly reduces the overall level of volatility and exposure to external factors. What does this mean for an investor? The more diversified your assets, the safer your money.
Diversifying an entire portfolio is one way to preserve wealth.Back