There are several reasons why international stocks should be in your portfolio.
U.S. stocks will make up a decreasing share of the global equity market. The most fundamental reason for this is that growth outside of the U.S., and especially in emerging and frontier markets, will grow faster than growth in the U.S.
Foreign equities will provide for a more-diversified portfolio, reflecting a global market. Long-term, the dollar will drop. Until the current account balance is no longer negative lower domestic demand, higher domestic interest rates and a dropping dollar will be part of our financial landscape. You can avoid this environment, in fact take advantage of the dropping dollar, by investing in foreign equities.
Emerging markets will see higher growth rates. You can be closer to the action if you invest in foreign equities, especially emerging markets.
Invest in a mutual fund that is focused on international stocks. Check out the offerings from some of the large mutual fund families. If you are just getting started consider the Vanguard Total International Stock Index (VGTSX). Then, start looking at emerging market funds. They tend to have a lower price/prospective earnings and price/cash flow…partly for good reason as they do have greater risk (volatility). However, the growth rates in emerging markets and the potential for greater inflation protection and dollar-decline protection make them worthy of strong consideration for your portfolio.
Related Activities and Side Trips
- Asset Allocation – Think Broadly and Look at the Big Picture
- Automated Saving and Dollar-Cost Averaging
- Diversification at Harvard
- Emerging Market Equities – BRICs and Other Considerations
- Emerging Markets in Your Portfolio
- Global Investing – Adding Foreign Stocks as U.S. Ends its Worst Decade Ever
- U.S. Credit Usage and Global Growth
- Your Financial Portfolio In Retirement – Asset Allocation
