Geographical diversification is the practice of diversifying aninvestment portfolio across different geographic regions in order to reduce theoverall risk and improve returns.
This method can be used by both private investors and companies tolimit and manage risk. Firms are able to lower their risk exposure to politicaland economic changes and "forces majeures" by locating particulardepartments and/or resources in different parts of the world. If one of thecompany’s assets is located in a region more vulnerable to change (tsunami,earthquake, revolution, riots) the parts located in other areas may compensateand provide balance.
Since the cycles that drive business and investment are experiencedat different times in different countries, foreign markets seldom move inperfect tandem with each other. Losses in one market may be offset by gains inanother. Geographical diversification significantly reduces the overall levelof volatility and exposure to external factors. What does this mean for aninvestor? The more diversified your assets, the safer your money.
Diversifying an entire portfolio is one way to preserve wealth.