Analyze the feasibility of international portfolio diversification. Would you diversify internationally?

    The portfolio construction is not as easy as it seems because it requires critical analysis and the individuals who does not have prior experience in construction of portfolio can experience financial loss. The main aim of the investor is to generate significant amount of return with manage risk level. Some investors are risk takers and other investors are risk averse. Overall whether the investor is risk taker or risk averse it has to analyze the market conditions and types of equities present out there for taking investment decision.

    The international portfolio diversification is way to minimize risk and maximizing the return. The portfolio is created so that the level of risk can be minimized. If the investor is going to invest in only one security than the chances of financial loss are quite higher. Therefore investing in different securities would lead to significant amount of return.

    If an investor is only invest in only one country then the chances exist that when the economic condition changes the return on the securities also decrease as a result. Therefore international portfolio diversification is a way to reduce the level of risk. The international portfolio diversification not only open new opportunities for investor but also results in huge amount of profit.

        I would definitely diversify the portfolio internationally because through diversifying internationally I can manage the risk quite efficiently. Although the international portfolio which includes S&P 500 & EAFE shows higher amount of return due to higher amount of risk.

        The USA index S&P 500 is providing average return of 0.044% whereas the average standard deviation which is a measure of risk is round about 0.705%.

    Through this one thig is evident that the higher the risk the higher would be the amount of return over the portfolio. If the investor does not invest internationally and keep on investing in its own respective country then it might lose the chance of generating significant amount of return and the opportunities which the international portfolio diversification provides.

        As discussed earlier the US index is providing significant return due to higher level of risk however if we talk about EAFE index it is providing lower return as compared to S&P 500 index. The average return which S&P 500 provide is 0.044% which is higher than EAFE because it is only providing 0.018%. The standard deviation of EAFE is 0.579% which is lower than the S&P 500. Due to lower risk the EAFE has lower return.

        However those investors who want to lower their risk can invest in the EAFE. It is clear that through diversifying portfolio internationally I can not only maximize the return but also can manage the level of risk. It is important to analyze the market conditions before taking the investment decision.