All investments carries certain amount of risk whether it be (Forex, Stocks, ETFs, Mutual Funds, Crypto-currencies, commodities etc )as it relates to loosing ones capital, however few people are aware that investments also carry Geo-Political risks. Other than balancing your portfolio based on volatility.
Geo-Political Factors affecting your investments
The following are some of the ways the Geo-Political factor discussed can affect your investments
- Change in Government Policies: Economic downturns are often followed by change in government policies which tend to seriously hamper or promote your investments. A good example of this is the Tax Cuts introduced by Donald Trump in 2016 that would lead to increase the overall net profits and Dividends of all stock investments.
- Political uncertainty and instability: Political Upheavals like the recent crisis in Turkey seriously shook the stability of the region and also the investments that made the stocks to fall by over 2.5% on that day alone.
- Natural disasters are also known to affect investments: the routine earth quakes in the middle east, the hurricanes in the west can and do affect ones investments adversely. They could shutdown or damage a factory hence lead to significant losses.
As a result of the above factors, diversifying your portfolio across Geo-Political Zones offers the following benefits.
Benefits of Diversifying your Portfolio based on Geo Political Location
- It will protect your investments from changes in the political instability:
- It will reduce your exposure to Geo-political zones such that the impact on your investments will be limited
- It will give your investment a more global outlook which is generally safer than investing in just one country.
- It allow you to stay abreast of all news across many geopolitical zones which in turn will allow you to be open to new opportunities as they arises
In our next post will address how to go about this.
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