Advisers encouraged to think beyond diversification habits

Investors should diversify across different countries, rather than different asset classes, for true diversification, according to the head of Intrinsic Value Investments, Neville Hathaway.

Speaking at the Financial Planning Association national conference, Hathaway said investors needed to take into account different cultures and politics when diversifying.

"[Diversification] often gets naively expressed as a correlation of investments, but I think it's much more fundamental than that, you need to diversify behaviour of politicians [also]."

Hathaway cited Japan as an example, which together with America made up 60 per cent of the share market, but whose share market was not performing.

"I would certainly concur that Japan has been a basket case. If you look behind the Japanese stock market, it's essentially a cultural and political problem," he said.

America has also been a serial underperformer, he said.

Hathaway also warned against diversifying only in the Australian market.

"Right now here in Australia we're very smug, we're sitting here and certainly feeling that we're doing better than the rest of the world, but look ahead 20 years and it may be very much the reverse," he said.

Australia is just one of 22 markets, and planners have the ability to diversify across all 22 markets, Hathaway said.