What I Buy and Why: The Geography Decision

Welcome to Financial Fluency - your weekly guide to mastering financial English, learning how money works, and making confident financial choices.

In this issue:

• A Look at the Markets: EURUSD Trump 1 & Trump 2

• What I Buy and Why: The Geography Decision

• Quote of the Day: Jack Bogle

• We value your feedback

• Word of the Day: Weighting

• Interactive quiz

• Whenever you are ready, here is how I can help you

A Look at the Markets: EURUSD Trump 1 & Trump 2

In February this year, I compared the EURUSD chart from Trump's first presidency with the beginning of his second presidency, starting from when he was elected.

I was particularly interested in the first year following each election victory (November to October - the yellow shaded areas on the chart).

You can see the first chart from February this year below.

Financial market narratives often suggest that current events are unprecedented - that we're experiencing something entirely new.

However, as this updated chart demonstrates, the EURUSD performance following each November election has been remarkably similar. So far, the currency pair's movement in Trump's second presidency mirrors almost exactly what happened during the equivalent period of his first term.

This pattern reminds us that while each market cycle feels unique when we're living through it, markets often follow familiar patterns that become clear only when we step back and examine the longer-term perspective.

What I Buy and Why: The Geography Decision

Why your investment location matters as much as your asset allocation

As I have said in previous newsletters, my introduction to investing came through my parents investing in UK stocks.

However, as I started investing myself, I began to wonder if they had been missing out. The UK blue chip companies they had been investing in were delivering steady returns, but during the late 1990s and early 2000s, American companies like Microsoft, Amazon, and the emerging tech giants started to dominate the headlines, particularly for growth. I began to realise that true diversification was as much about geography as sector allocation.

ETFs not only allow you to invest in different regions but also allow you to exclude different regions.

Why Exclude Regions?

Why might you want to exclude regions?

The answer may not be what you think. You may be thinking it is because some regions are too risky and those with a low risk tolerance may want to avoid them. This is partly true, but, in my opinion, there is often a bigger reason to exclude regions.

Let's look at a practical example by considering an American investor.

Ex (short for 'excluding') USA ETF

Why would anyone want to exclude the USA, the world's dominant economy?

Let's imagine an American investor, Judy. Judy is 40 years old, has an apartment in Brooklyn, and has built a portfolio of US shares including Apple, Tesla and NVIDIA, but wants further diversification from foreign markets such as Europe and Asia. She looks at the Vanguard FTSE All-World ETF and realises she has a problem - this index currently has a 59% weighting towards the USA and contains many of the stocks that she already owns.

In fact, rather than diversification, she is actually adding exposure to stocks that she already owns.

My Choice of ETF

My position is different to Judy in that I want to build an ETF portfolio for my retirement fund, hopefully, over the next 30 years or so!

I do own individual shares but I use these for growth over the medium term and put any profits into my retirement ETF. This should be 'set and forget' until I am ready to use it for some income (up to 4% per annum). I do not want to be constantly thinking (or guessing!) which might be the best place to invest.

For this reason, I choose a fund that follows the FTSE All-World index. This gives me exposure to around 3,600 companies in developed and emerging markets. If one region or country starts outperforming the others, the ETF will automatically change the weighting of the stocks towards that area. I have taken the guesswork out of investing for the long-term.

Is This a Good Choice for Everyone?

Absolutely not. All investing decisions depend on your personal circumstances.

We saw in the previous section that this global ETF may not be a good choice for Judy because it would not give her the diversification she wanted. Some people may not want the extra risk of investing in emerging markets, so would prefer a developed world ETF. In the US, for example, many people are only interested in US stocks, so an ETF that follows the S&P 500 may be more suitable.

When choosing an ETF, it is important to consider your personal situation, goals, and risk appetite.

Conclusion

Three points to consider when deciding the geographical area for your ETF:

1. Your existing assets including property, individual stocks etc

2. Geographical areas you may want to gain further exposure to

3. Geographical areas you may want to exclude either because of risk tolerance or over exposure

As always, none of this is financial advice. Everyone should invest according to their personal circumstances, risk tolerance and financial goals.

Quote of the Day: Jack Bogle

This perfectly captures the power of ETFs for geographic diversification. Rather than trying to pick the next winning international stock or predict which region will outperform, ETFs let you own the entire global marketplace. With it's 3,600 companies through the FTSE All-World index, you're buying a wide range of opportunities rather than searching for individual needles.

We Value Your Feedback!

Your opinion helps us improve and lets you suggest topics or ask Business English questions for future issues.

Word of the Day: Weighting

Weighting - noun - the relative proportion or percentage that each component represents within a portfolio, index, or fund; determines how much influence each holding has on overall performance.

Context and Usage: In investment contexts, weighting determines how much of your money goes to each asset. Market-cap weighted indices automatically adjust weightings based on company size - as successful companies grow larger, they represent a bigger portion of the index. Understanding weightings helps investors see their true exposure to different regions, sectors, or individual companies.

Note: Weighting is fundamental to portfolio construction and risk management. A portfolio heavily weighted toward one region or sector may have concentration risk, while balanced weighting can provide better diversification.

Common Collocations:

Market-cap weighting - sizing positions based on company market value The S&P 500 uses market-cap weighting, so Apple and Microsoft have much larger positions than smaller companies.

Geographic weighting - proportion allocated to different regions Many investors don't realise their global ETF has a 60% geographic weighting toward US markets.

Sector weighting - percentage allocated to different industries The fund's heavy technology sector weighting made it volatile during the tech sell-off.

Equal weighting - giving each component the same proportion Equal weighting means each stock gets the same 2% allocation regardless of company size.

Business Example: The portfolio manager adjusted the weighting toward emerging markets from 10% to 15% to capture growth opportunities.

Investment Context: Weighting determines your actual exposure to different investments. Even in a "global" fund, understanding the geographic weighting helps you see if you're getting the diversification you expect or inadvertently concentrating risk in particular regions or sectors.

Interactive Quiz

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Disclaimer:

This newsletter is for informational and educational purposes only and should not be construed as financial advice. The information contained herein is generic and does not take into account your individual financial circumstances. You should always consult with a qualified financial professional before making any investment or financial decisions.

Additionally, the authors and/or publishers of this newsletter may hold investments in securities or other financial instruments mentioned herein. These are included for illustrative purposes only and should not be taken as a recommendation to buy or sell such securities or financial instruments.