Banking on Global Diversification
Following the collapse of Silicon Valley Bank (SIVB), it’s understandable that investors may feel anxious, but when a bank or any other company falters, your investment plan shouldn’t.
This week, I have been considering a saying attributed to Nobel laureate Harry Markowitz that diversification is the only free lunch in investing. Incorporating core investment principles like global diversification into your investment plan can give you respite from concerns about the fate of individual companies.
An investor with a broadly diversified global equity and bond allocation can have exposure to thousands of companies, issuers in dozens of industries, and countries around the world. For instance, as of February 28, SIVB was just one of more than 9,000 companies in the MSCI All Country World IMI Index (MSCI ACWI IMI) and represented a mere 0.03% of the index.1 As of the same date, regional banks in total represented only 1.15% of the index, with the largest at 0.10%.2
Global diversification may not make headlines, but thanks to financial innovations over the last century in the form of diversified mutual funds and ETFs, it’s an accessible, affordable plan for investors.
Footnotes
- 1The MSCI All Country World IMI Index is a broad market-capitalization-weighted index of public companies across developed and emerging markets globally. As of February 28, 2023, the MSCI All Country World IMI Index included 9,010 companies. MSCI data © 2023, all rights reserved. Silicon Valley Bank weight represented by its parent company SVB Financial Group.
- 2Regional banks weight reflects the weight of the “Regional Banks” GICS Sub-Industry as of February 28, 2023, as defined prior to March 17, 2023. GICS was developed by and is the exclusive property of MSCI and S&P Dow Jones Indices LLC, a division of S&P Global.
Disclosures
All expressions of opinion are subject to change. This information is not meant to constitute investment advice, a recommendation of any securities product or investment strategy (including account type), or an offer of any services or products for sale, nor is it intended to provide a sufficient basis on which to make an investment decision. Investors should consult with a financial professional regarding their individual circumstances before making investment decisions.
Diversification neither assures a profit nor guarantees against loss in a declining market.
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