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Is your portfolio too Australian-focused?

The average Australian investor is quite heavily focused on the top end of the Australian share market. Seemingly the people with the biggest portfolios, such as SMSFs, seem to be the most invested in the biggest ASX stocks.

Every investor should be aware of diversification for their portfolio. If investors are heavily invested in large cap stocks like Commonwealth Bank of Australia (ASX: CBA), Telstra Corporation Ltd (ASX: TLS) and Suncorp Group Ltd (ASX: SUN) then they’re missing out.

It’s much harder for big companies to double in value compared to small companies, which is why it’s better to invest in small caps or mid caps. Australian companies are much more domestically focused compared to the biggest companies on other exchanges in North American and Europe. Domestic companies mostly miss out on global growth.

Some of the most exciting companies in the world in regards of profit growth are some of the biggest, such as the tech stocks like Alphabet (Google) Amazon and Facebook. For example, Facebook increased its profit by more than 50% in its report. Commonwealth Bank is lauded if it reports growth of more than 5% each year.

The Australian market only makes up between 1% to 2% of the global share market. I believe that to generate reasonable long-term investors need to get exposure to overseas equities.

Fund managers Platinum Asset Management Limited (ASX: PTM) and Magellan Financial Group Ltd (ASX: MFG) both run several internationally-focused funds that have demonstrated long-term outperformance. It’s worth looking into some of these.

There are also several exchange-traded funds (ETFs) that own some of the best companies in the world as part of their top holdings. iShares S&P 500 ETF (ASX: IVV), Vanguard MSCI Index International Shares ETF (ASX: VGS), BETANASDAQ ETF UNITS (ASX: NDQ) and Betashares Global Cybersecurity ETF (ASX: HACK) all offer investors good ultra-long-term absolute returns.

Foolish takeaway

Australia has had an amazing run, but it becomes very dangerous to expect that run to continue forever, that’s when expectations can bite an investor the hardest. The classic phrase ‘past performance is not an indicator of future performance’ is perfect for the Australian economy at the moment.

Top Aussie shares like these are growing their overseas revenue, which also hedges against an Australian downturn.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended BETANASDAQ ETF UNITS and Telstra Limited. The Motley Fool Australia owns shares of BETA CYBER ETF UNITS and Platinum Investment Management Limited. The Motley Fool Australia has recommended Vanguard MSCI Index International Shares ETF. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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