How to Build a Global Investment Portfolio for the Next Decade
By Brian Famigletti, Managing Director & Head of Marketing
Avoid This Trap
Building a global investment portfolio involves allocating funds in investments that extend beyond the U.S. The benefits of adopting this philosophy include risk reduction, access to growth markets, and improved long-term returns.
Global investment portfolios often begin with benchmarks. The so-called “World Portfolio,” which represents a broad mix of global assets, is commonly used as a guide for allocation decisions. Passive, benchmark-driven portfolios, however, may not be optimal. Here’s why.
These approaches are typically market-cap weighted, meaning investments are held proportionally to their total market value. As a result, portfolios built in this way tend to be dominated by the largest and most established assets.
This concentration can limit diversification and overlook opportunities in emerging markets, commodities, and alternative assets. It can also lead to short-sighted decisions.
Here’s an example: A portfolio manager is choosing between a stable stock with a 9% return and a volatile index fund that averages 9%. The sensible decision is to pick the steady stock, but managers focused on beating the benchmark might choose the riskier index fund instead.
Benchmarks can be useful investment tools, but they are in part driven by past market values rather than forward-looking return potential. Investors who selectively deviate from these reference points have the opportunity to capture a broader range of possibilities.
Diversify and Conquer
Investors are looking for consistency when building global portfolios.
Aligning investments with long-term plans, especially during turbulent periods, can create just that.
For example, history suggests that reacting emotionally to geopolitical news can lead to poor timing decisions. Selling into volatility can lock in losses and reduce the ability to participate in recoveries.
For the past eight decades, markets have weathered even the worst market downturns. In every instance over that period, sufficiently diversified portfolios have fully recovered within 3 to 5 years. Develop a plan and stay the course.
That’s not to say there aren’t near-term risks to geopolitical volatility. But rather than trying to time the market, investors’ energy may be better spent elsewhere. Focusing on liquidity planning, for instance, can help manage those risks without undermining long-term positioning.
Maintaining sufficient cash, high-quality bonds, or borrowing capacity to fund near-term spending needs may reduce the pressure to sell long-term investments during market stress. This approach can provide flexibility while allowing growth-oriented assets time to recover.
Incorporating Alternatives
Building a global investment portfolio for the next decade requires a broader toolkit. Savvy investors may utilize “strategic tilting,” which involves adjusting allocations based on expected risk and return rather than strictly following benchmarks.
Historically, diversified portfolios, such as a 60/40 mix of stocks and bonds, have delivered strong risk-adjusted returns. More recently, allocations incorporating real assets, such as gold, have shown benefits, particularly during inflationary periods.
Alternative investments may further enhance portfolio outcomes. For instance, private markets, hedge funds, and other non-traditional assets have grown significantly in recent years. These investments may offer improved returns with lower volatility when actively managed.
In addition, alternatives can exhibit lower correlations with traditional assets. This has the potential to improve overall portfolio diversification and reduce drawdowns during market turmoil.
A global investment portfolio should not rely solely on passive allocation. Instead, it may benefit from a flexible framework that incorporates diversification, active positioning, and exposure to a wider range of asset classes.
If you would like to review how to build a global investment portfolio aligned with your long-term goals, contact Griffin Asset Management to speak with an expert today.
Source:
Goldman Sachs: How to Build a Global Investment Portfolio for the Next Decade
