The best protection is to include global assets in your portfolio.
The Christchurch earthquakes took the wind out of our economic sails last year.
We've also had the Psa kiwifruit outbreak in the Bay of Plenty and now Tongariro is reminding us that eruptions can happen at any time.
What would happen if Tongariro or another volcano erupted in a big way? In economic terms, the value of our economy would shrink drastically as tourism, trade and commerce halted, interest rates would be reduced to very low levels and our currency would fall sharply.
Some would argue that this discussion is pointless.
The odds of this happening are low and the effects might not be as bad as we expect.
If it does happen, we would all have more to worry about than our portfolios.
However, investors and their advisers are supposed to worry about risk, even when the odds of such events seem low.
Not only is New Zealand vulnerable to natural disasters but also to an outbreak of a disease that threatens our agriculture.
Psa has had a big impact on jobs and consumer spending across the retail and hospitality trades, as well as the income and wealth of those directly invested in the sector.
Imagine what a similar outbreak could do on a national scale in one of the bigger agricultural sectors.
It would flow through to every part of the economy, hurting businesses, causing job losses and reducing house prices and farm values.
It makes a lot of sense for investors to diversify some of their investments away from this country, but over recent years there have been many reason not to.
The New Zealand dollar has been exceptionally strong, our sharemarket has done much better than most overseas markets, our interest rates are still higher than overseas and imputation credits aren't available on international shares.
New Zealand looks as if it will be a successful hunting ground for investors for some time.
Our economy is stronger than most, our agricultural sector has a bright future, our currency is likely to stay at above average levels and our high-dividend sharemarket is well positioned.
But this argument for some overseas investments isn't based on the "most likely" scenario.
It's based on scenarios that we hope will never happen, but which would have a huge impact.
The 2011 World Wealth Report from Capgemini and Merrill Lynch shows that diversification is something that people with serious money consider important.
This survey of high net wealth investors - defined as those who have US$1 million of net financial wealth (in addition to their home) - outlines where these people invest theirmoney.
On average, the 10.9 million people globally who fit this definition have 38 per cent of their investment capital invested in shares, 29 per cent in bonds, 11 per cent in cash, 15 per cent in real estate and 8 per cent in alternative assets such as hedge funds, commodities and private equity.
If the world's richest people take such a diversified approach perhaps the rest of us should consider it.
Not only are these people diversified across asset classes, but they also have, on average, 47 per cent of their investments outside of their home market.
For most New Zealand investors, such a high overseas weighting might be a step too far, but the principle is worth a bit of thought.
Investors can buy index funds that will give them diversified, low-fee access to just about any region or theme in the world.
There are also UK investment trusts, a handful of which are listed on the market here, or they can put together a portfolio of global companies such as Apple, Unilever and Vodafone.
Many corporations in the United States and Britain are exporters, with a large proportion of their earnings coming from Asia, Europe and Latin America.
Nearly 50 per cent of the combined revenues from companies on the US market come from outside the US, giving investors some diversification across different countries and different exchange rates.
It doesn't take much to dent a small, vulnerable economy such as ours and it makes some sense to have a portion of your savings invested overseas, even simply as an insurance policy, and now could be a good time to start putting such a plan into action.
Mark Lister is head of private wealth research at Craigs Investment Partners. His disclosure statement is available free of charge under his profile on www.craigsip.com. This column is general in nature and should not be regarded as specific investment advice.
