Why invest off-shore?
The reasons to diversify have been explained elsewhere on this site. For a New Zealand investor it's the international investments which dragged returns down between 2000 to 2003. So why invest in international markets?
A large part of was the strengthening of the New Zealand dollar against other world currencies. Economists are predicting a 11-drop in our exchange rate against the US dollar over the next 12 months. Also don't forget the period between April 2000 and March 2003 was the worst performing period for international equities since 1929 to 1934. New Zealand and Australian equities performed relatively well during 2000 to 2003.
The hoax in May 2005 of 'foot and mouth' on Waiheke Island, New Zealand should serve as a warning. Economically it is predicted it would have cost $6 billion in the first year, $12 billion in the second year. New Zealand is very vulnerable to any disease such as foot and mouth crippling the image of New Zealand as 'clean and green' which would affect tourism and the meat and dairy industries.
New Zealand is in an earthquake and volcanic zone belt. We were given a warning in 1996 with the volcanic eruption of Mt Ruapehu, but this was fairly remote being in the centre of the North Island. What would have been the impact on the economy if it had been in Auckland? What about a major earthquake in Wellington?
This is why the Earthquake Commission, which would help to pay for rebuilding after a major earthquake keeps its $3.3 billion in assets invested overseas and partly why the $6 billion Cullen New Zealand Superannuation Fund, designed to help pay for NZ super, invests 75% of its money overseas.
By investing off-shore you also get exposure to markets not well supported locally such as mining, finance, software and pharmaceuticals.