Why is it so important to hold a portion of your investments offshore? Markets have been selling off heavily in the past few weeks - the ASX is off 8% and the S&P500 is off 10%. The Australian dollar, which as a commodity currency goes down when China and resources fall, has also taken a beating. But for those in the US market this is positive – they have gained 6% in the value of their US$ holdings, meaning that their net fall is only 4% in Australian dollar terms. Not bad when the ASX is off double that.
It’s obvious, of course – there is no finance prize for pointing this out. But the reality (as the tax office and any number of others have noted) is that Australian SMSF’s have 30% of their holdings (or $165b of a total of $557b) in Australian shares. They have only $2b in offshore shares. This is a bad idea. The world is globalising, Australia has been a major target market for energy (Exxon, BP), consumer products (Procter and Gamble) and technology (Apple, Google). In all truth, the banks are squarely in the sight of disrupters, so that is coming too. Investors should make sure they have some level of exposure to these global giants, with the added benefit that they will also get some help from the Australian dollar if it keeps falling. (VIEW LINK)