Global asset allocation spreads risk across different economies from "summary" of All About Asset Allocation, Second Edition by Richard Ferri
Global asset allocation is a strategy that involves spreading investments across different economies around the world. By diversifying in this way, investors can reduce the risk associated with any one particular market or region. This approach recognizes that different economies may perform differently at any given time, so having exposure to multiple markets can help balance out the overall risk in a portfolio. When one market is struggling, another may be thriving, and vice versa. For example, during a recession in one country, another country might be experiencing economic growth. By having investments in both countries, an investor can potentially offset losses in one market with gains in another. This can help smooth out the overall performance of a portfolio over time, making it less vulnerable to the ups and downs of any single market. In addition to geographic diversification, global asset allocation also involves investing in different asset classes, such as stocks, bonds, real estate, and commodities. Each asset class has its own risk and return characteristics, so by spreading investments across a mix of asset classes, investors can further reduce the overall risk in their portfolios.- Investors can create a well-balanced portfolio that is designed to weather a variety of market conditions. This approach is based on the principle that spreading investments across different economies and asset classes can help reduce risk without sacrificing potential returns. It is a long-term strategy that aims to capture the benefits of global markets while minimizing the impact of any one market downturn on a portfolio's overall performance.
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