Australian vs International shares

Why investing close to home may not be enough.

Australian investors naturally feel comfortable investing close to home. We recognise many of the companies listed on the Australian stock market, understand the local economy, and often value the reliable dividend income Australian shares can provide.

But while familiarity has its advantages, investing too heavily in one market can also limit diversification within your portfolio.

The benefits of Australian shares

Australian shares can play an important role in a diversified portfolio. Many of our largest companies have a strong history of paying dividends, while franking credits can provide additional tax benefits for eligible investors.

The Australian market also offers exposure to some high-quality businesses and has particular strengths in areas such as banking, resources, and dividend-paying companies.

However, these strengths also highlight one of its limitations. The Australian share market represents only a small proportion of the global investment universe and is heavily concentrated in financial and resource companies.

As a result, a portfolio invested mainly in Australia can become particularly sensitive to the domestic economy, interest rates, the housing market, and commodity prices.

International shares – Looking beyond Australia

International shares provide access to thousands of companies operating across different countries, industries, and economic environments.

This includes many global leaders in sectors that have relatively limited representation in Australia, such as technology (including AI), pharmaceuticals, medical devices, defence, luxury goods, aerospace, space, and global consumer brands.

Investing internationally therefore provides more than simply a larger selection of companies. It can reduce reliance on the performance of a small number of local industries and broaden the sources of potential portfolio returns.

Market leadership also changes over time. The countries and industries that perform strongly during one period may not lead during the next. Holding investments across different markets can help a portfolio participate in a wider range of opportunities, rather than depending on one part of the world continuing to outperform.

Diversification is not simply about owning more investments. It is about owning investments that are exposed to different economic drivers and may perform differently from one another.

Understanding currency movements

International investments are also affected by changes in exchange rates.

When the Australian dollar falls, the value of unhedged overseas investments will generally increase when translated back into Australian dollars, all else being equal. When the Australian dollar rises, it can reduce the Australian‑dollar value of those investments.

Some international investment options hedge some or all of their currency exposure, while others remain unhedged. A combination of hedged and unhedged investments may also be used, depending on the role each investment plays within the portfolio.

Currency movements can create additional short-term volatility, but they can also provide another source of diversification, particularly during periods when the Australian dollar is weakening.

Different markets, different roles

The choice between Australian and international shares does not need to be an either‑or decision.

Australian shares may provide attractive income, franking benefits, and exposure to sectors in which Australia has established strengths. International shares provide access to a much broader range of businesses, economies, and long-term growth opportunities.

In many diversified portfolios, both have an important role to play.

The appropriate balance will depend on an investor’s objectives, income requirements, investment timeframe, and tolerance for market movements. The key is to ensure that familiarity with Australian companies does not unintentionally result in an overly concentrated portfolio.

Your financial adviser can explain how Australian and international shares are currently used within your portfolio and how the allocation supports your broader financial goals.

If you would like expert guidance on your investment portfolio, please complete the form below and our team will be in touch.