Strategic Asset Allocation and the Principles of Geographic Diversification

Written by admin on August 14th, 2011

Strategic asset allocation is a vital concept that must be understood by anyone trying to create a robust portfolio and a lifetime of wealth. Recognizing market indicators and financial trends around the world can help the investor strategically. Investing in only one sector or in one country is never the correct approach. The risks inherent in investing will be mitigated only through asset diversity.
How can you ensure your investments have the correct asset mix? What type of market indicators can you look for? Making sure you have the correct strategic asset allocation mix depends on the investor. Each individual has a different tolerance for risk. But whether you are investing in a safe mutual fund or risky commodities, remember that global diversification is the key to your success.
Some of the market indicators you can track are inflation, unemployment, the GDPs of the countries you are interested in, the financial sectors that are thriving, and economic predictions. Remember if you want to be a successful investor, you need to be constantly researching. Simply watching the news can make a huge difference.
Let’s take a look at the oil spill that occurred in the Gulf of Mexico in 2010 as an example. Oil is a commodity. If you are a geographically diverse investor, you should be considering how this spill will affect the price of oil. According to authorities, the oil rig was dumping 5,000 barrels of oil per day into the ocean until it was sealed off. What effects will this have on the price of oil?
The total volume of oil lost in this accident is a tiny fraction of the total world wide daily production so this in its self is unlikely to affect the price of oil. A possible flow on effect of this environmental disaster could well be that oil companies will be forced to put in place very expensive measures to make sure such leaks cannot happen again, and there is also pressure from environmental groups to have under water drilling banned. What effect will these things have on the price of oil?


Obviously the supply of oil is not increasing, and we know demand is not decreasing. Most likely, oil will go up in price. All this may affect the way you think about your strategic asset allocation plan.
Investors should also consider what may happen to the price of stock in that particular oil company and other companies involved in the disaster. The normal knee jerk reaction of the market is that the stock price drops and then recovers. A savvy investor could well short the stock early in the event, make a profit as the stock goes down and later buy back in at a lower figure and profit again as the stock price recovers. This is how keeping up with current events and thinking laterally can help with strategic asset allocation.
Investing globally and keeping a portfolio filled with low-correlated assets is a good approach to strategic asset allocation for any investor. Many financial institutions have a general asset mix that they can recommend to their investors. If you are a beginner, go to these websites and do the proper research before moving forward. If you are an experienced investor, remember to keep an open mind and think outside of the box. Staying with only domestic investments will not give you the diversification a global mindset can provide.
Whether you live in the US, Australia, or Russia, keep a geographic mindset when it comes to strategic asset allocation. Assets can create limitless opportunities in the investment world. If you do not have a background in economics, try to educate yourself. Economics will help you understand and recognize market indicators. Simple supply and demand can make or break an investment. Experience is a must when you are investing, and if you do not have the proper experience, do not be afraid or too proud to seek professional advice.

Max Smith is a successful Internet entrepreneur, business coach and author, specializing in income production, wealth management and international investment diversification. He is a Qualified Veterinarian and over the years he has successfully invested in stocks and stock options, owned several successful businesses and has been investing in residential and commercial real estate since 1970.

Over his forty years of investing, Max has developed his Geographical Diversification strategy. The fundamental principle is that even during a time of global financial stress-such as we are currently witnessing with the Great Recession-there are still pockets of financial abundance.

To download his FREE Special Report – Seven Little-Known Secrets Of Geographical Diversification Investing! visit his website

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