Why global portfolio diversification still makes sense for the investors

Indian investors tend to invest in domestic companies, but according to Shilpa Menon, senior director—India at LCR Capital Partners, prudent investors know that the safer route is to diversify one’s portfolio across international lines. According to a study by LCR Wealth, in the 22 years from 1999 through 2021, the Indian, US, Brazilian, and European markets reported wildly differing nominal returns—but the numbers are not always transparent, because investors fail to consider inflation and currency exchange rates, two crucial factors that affect the purchasing power of returns. For example, an investment in India’s Nifty 50 Index reported a nominal return of 1,065% vs. a nominal return of 386% for the US’s S&P 500 Index over those 22 years. When inflation is factored into the mix, the difference in returns drops to 213% for the Nifty 50 vs. 192% for the S&P 500. But finally, when factoring in the increase in currency values over 22 years, during which time the rupee gained far less value than the dollar, the same investment in the Nifty 50 gains only 90% in value over 22 years whereas the S&P 500 investment stays at 192%. Because 40% of the expenses borne by high-net-worth Indian families depend on the dollar rather than the rupee, investing in US securities can have a major effect on the purchasing power of Indian families.

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