Friday Finance: is it essential to invest internationally?

This is an extract from The Poor Man’s Guide to Financial Freedom: A Realistic, 10-Step Manual to Building Liberating Wealth on a Small to Medium Budget.
International Diversification
As you saw in the box, there are a vast array of funds offered by Vanguard in some places. However, you’ll only need one or two of these funds to achieve all the share market diversification you need, plus perhaps a bond index fund as discussed earlier. Ignore all the weird and wonderful specialty funds.
Should you diversify your shares by investing in overseas stock markets, or stick with those in your own country? For example, take Steve, an Australian investor. Should he invest entirely in the Australian Shares Fund (which tracks the ASX 300), or should he also have some exposure to the International Shares Fund (which tracks several major indexes for overseas stock markets)?
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