International investing is opening up a world of opportunity for millenials
International investing is coming of age as super and investment platforms make it easier and cheaper to explore global markets - allowing millennial investors to embrace a world of opportunity.
Australia's millennials could be on the cusp of a seismic shift. As Alex Vynokur, CEO of BetaShares, points out, "The traditional path to wealth in this country has always been about property ownership.
But as property becomes less affordable, millennials can take advantage of important growth opportunities by investing internationally."
As an investor, it can be tempting to stick to familiar home turf, but taking a global outlook makes sense.
The Australian Securities Exchange (ASX) accounts for just 2.1% of the world's total equity markets. As Vihari Ross, head of core series at Magellan Financial Group, says, "The ASX is based heavily around resources and financial stocks - that's not what the rest of the world looks like."
Tapping into global mega-brands
Diversification is one of the key attractions of global investing.
Matt Heine, joint managing director of Netwealth, explains: "Being able to access overseas markets hugely increases the opportunity set for investors, with exposure to sectors that are barely represented on the ASX."
According to Ross, some of the world's most impressive companies like Nike, Apple, Amazon and Google are not accessible via the ASX, yet millennials can have a valuable advantage when it comes to investing in these global mega-brands as they understand their products and services, they consume their marketing and have a feel for their popularity amongst their peers.
"They use their products and understand how these companies work and what it is that they do, far better than they understand how a local Australian bank operates."
Investing in international markets
In the past, investing offshore has been challenging and expensive, often with access to limited markets, and typically at a higher brokerage cost. That's no longer the case.
Heine explains: "Around five years ago, Netwealth set out to solve a number of those challenges by delivering the technology to make trades in overseas markets both easy and affordable."
The result has been a burgeoning of interest among millennials eager to invest offshore. "We've been surprised by the significant interest in large technology stocks," says Heine. "But we're also seeing good growth in international exchange traded funds (ETFs)."
While many household names are listed on US markets, compelling opportunities lie elsewhere in the world. For millennials, this makes it worth looking at the breadth of overseas markets available on a platform.
International investment does come with other factors to consider, like currency exchange rates and potential tax implications, so investors keen to look at opportunities globally should be aware of possible risks.
Why growth opportunities matter
For any investor, a key question is always, how have global markets performed?
Past returns are no reflection of the future, but as a guide, the ASX 200 Index, which measures the performance of Australia's 200 biggest listed companies (by market capitalisation), has notched up average gains of 6% annually over the past 10 years.
By contrast, the MSCI Index, which measures returns on global share markets excluding Australia, has recorded 10-year gains averaging 11.85% annually.
This reinforces Vynokur's view that, "The growth opportunities are outside our border, and investing internationally gives millennials the ability to get ahead in life, build portfolios and grow their wealth."
Looking beyond equities
What's especially exciting is that investors are not limited to global equities. A vast array of unlisted assets is available spanning international property markets, infrastructure, bonds and even private equity or venture capital.
"There are strategies to diversify away from shares," says Ross. "However, one of the most seamless ways to invest in global assets beyond shares is through a managed fund, managed account or ETF.
"When you invest directly, you really need to do all the due diligence around the quality of the investment yourself. Managed fund and managed account managers have far more resources available to work out what to invest in, and what to avoid. It's difficult for individual investors to replicate the depth and quality of research that a team of professionals can deliver."
The upshot is that international investing can bring diversity and growth opportunities to the portfolios of millennials.
Yes, there are risks, but no investment is risk-free, and investment markets tend to move in cycles.
But as Ross points out, "Millennials have time on their side to allow portfolios to recover from market dips and let compounding returns work their magic over the long term."
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