Geographic Diversification Can Be a Lifesaver

Bridgewater

Melissa Saphier

Research

10 Pages

Bridgewater Associates explores how geographic diversification shapes portfolio resilience, emphasizing that concentrating in a single country can expose investors to prolonged drawdowns and uneven recoveries across global markets. The paper highlights that no country consistently outperforms and that diversified portfolios often achieve similar returns with less severe losses, challenging home bias.

Key Takeaways

Severe Country Drawdowns: Individual markets experienced losses as large as -74% and took up to 16 years to recover, highlighting the risk of single-country exposure.
Diversification Reduces Losses: An equal-weighted global portfolio saw smaller declines, such as -17% versus -66% in Australia during the 1970s inflation shock.
Wide Performance Dispersion: The gap between best and worst country returns reached 507%, underscoring how diversification captures upside while limiting downside risk.
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