top of page
Writer's pictureTimothy Clifford

Why a Diversified Portfolio of Multinational Companies May Be Preferable to Gold

Updated: Dec 8, 2023



A diversified portfolio of multinational companies like Coca-Cola, Procter & Gamble, Nestle, Exxon, Microsoft, Apple, and many more provides risk management in three critical areas essential for growing and preserving wealth. These areas include currency risk, inflation risk, and political risk.


Let's delve deeper into each of these risks and see how multinational companies can help manage them.


Currency Risk

Multinational companies serve as an effective buffer against currency risk. These companies generate revenues in different currencies across the globe. Take Coca-Cola, for instance, which does business in over 200 countries and receives payments in various currencies. This global operation means that if the value of one currency drops, the effect could potentially be offset by the strength of another currency in which the company also does business. This diversified approach helps reduce currency risk, an advantage less available to gold investments, which are universally priced in U.S. dollars and therefore expose investors to fluctuations in a single currency.


Inflation Risk

Multinational corporations can also assist in managing inflation risk. Inflation reduces the purchasing power of money over time and poses a threat to long-term investors. Gold is traditionally viewed as a hedge against inflation, but multinational companies, particularly those that can adjust their prices in response to inflation, offer a more proactive approach. Companies like Procter & Gamble and Nestle can often pass on increased costs to consumers by raising their prices, thus preserving their profit margins during inflationary times. Furthermore, companies like Exxon, Microsoft, or Apple, operating in sectors such as energy or technology, could potentially benefit from inflation due to increased demand for their commodities or services. This demand can lead to higher revenues and potentially better returns for investors.


Political Risk

Political risk is an often-overlooked factor by investors. Political instability or unfavorable regulations in one country can significantly affect an investment's value. By diversifying your portfolio with multinational companies, you distribute this risk across various countries. If Microsoft, for instance, faces regulatory challenges in one country, its operations in other nations can help buffer any potential negative effects. This kind of diversification is not as easily achieved with an investment like gold, which is influenced by international market forces and may be disproportionately affected by political disturbances in major gold-producing or consuming nations.


In conclusion, while gold has traditionally been seen as a store of value and a hedge against financial uncertainties, a diversified portfolio of multinational companies offers a more dynamic and potentially more resilient mechanism for managing the risks associated with currency fluctuations, inflation, and political instability. The ongoing operations, innovation, and growth potential of these companies present opportunities for both wealth preservation and growth, positioning them as attractive investment alternatives.





DISCLOSURE - All written content on this article is for information purposes only. We utilized ChatGPT and other sources for this article. Opinions expressed herein are solely those of Core Wealth Consultants. Material presented is believed to be from reliable sources, however, we make no representations as to its accuracy or completeness. Core Wealth Consultants, LLC a Registered Investment Advisor in the States of Florida, Indiana and Michigan. You should always consult an attorney or tax professional regarding your specific legal or tax situation. Diversification and asset allocation does not assure or guarantee better performance and cannot eliminate the risk of investment loss.


22 views0 comments

Comments


bottom of page