The press is filled with debate about the supposed end of the mining boom, largely a result of one copper project in South Australia (the Olympic Dam expansion) being canned.

In my view, the current boom ended a while ago, possibly as far back as 2007. Believers in Murphy's Law might say it ended the moment the government decided it should tax mining super-profits.

It doesn't really matter when the boom ended, and its demise doesn't mean doom either. The real argument concerns what investors should do about this fact, particularly those worried about falling interest rates.

Whether you believe the supercycle will persist or think Australia is about to fall into a gigantic Pilbara-sized hole, if you own a portfolio of Australian term deposits, hybrids, ASX-listed shares and residential property, right now you should be thinking about "diversification".

That means shifting out of Australia while the going is good and heading offshore.

The Aussie dollar is strong but it may not stay that way. Better to diversify from a position of strength now than after the local dollar, and your investment portfolio, has taken a hit.

What's the case for diversifying? Aside from the usual "don't put all your eggs in one basket", Australia has an Achilles heel: debt, and lots of it.

We may not have suffered the effects of the GFC in the same way as many other Western countries but we've got the same predilection for borrowing to build big, expensive new houses.

According to the IMF, Australia's "international investment position" (a measure of external debt, adjusted for external financial assets) as a percentage of GDP sits just above Spain and just below Turkey.

Now, these statistics don't account for the term of the debt or the ability to refinance it. But whichever way you look at it, the commodities boom of the last decade has left us with a lot of debt. It will need to be repaid.

That means we're more exposed to global volatility than many investors believe. It's a huge risk that many local investors are taking without knowing they're taking it.

About half our external debt resides with the banks (against 15 per cent for governments). Half, again, of that bank debt is being used to finance residential mortgage lending.

Australia's economy may continue to hum along on its current trajectory, the debt could be rolled again and nothing untoward may happen. But you wouldn't want to bet the house on it.

Prudent investors should think about having at least some "short AUD" exposure (whether it be international shares, property, bonds, precious metals or just currency).

For income investors a "short AUD" strategy helps to alleviate the exposure to falling local interest rates. Many sectors of the Australian economy would benefit from a weaker dollar and, if the resources sector slows down, pushing down interest rates is one way to achieve it for them.

The "short AUD" portion of investors' portfolios will win out if this eventuates, helping to offset the income hit.

To borrow the parlance of the perma-bulls, I still say "go Australia". No one's talking down the book.

But a little bit of diversification away from Australia means you're not hanging everything on the national credit card limit.

This article contains general investment advice only (under AFSL 282288).

Richard Livingston is managing director of Walnut Report, Intelligent Investor's new publication about tax and SMSF investing. BusinessDay readers can enjoy a free trial offer. For more Intelligent Investor articles click here.