12 Sep How much is too much for international investing?
Q. I’ve always had about 20 percent of my portfolio in international investments. Given current events, is international a better place for most of my money than the U.S.? How can I decide to benefit the most from the next few years of what will probably be crazy?
A. If only we had a crystal ball!
No one can predict with certainty what the future will hold for U.S. or international markets.
The words that concern us about your question are “most of my money.”
It’s never a good idea to hold concentrated positions with the bulk of your assets, said Paul Criscione, a certified financial planner with Freedom Capital Management in Colts Neck.
“International investments can offer diversification and growth, however, allocating `most of your money’
into this sector can expose you to many inherent risks,” Criscione said.
Among the risks is a lack of information.
“Many companies outside the U.S. do not provide investors with the same type of information as U.S. public companies,” Criscione said. “Also, the information may not be available in English.”
Then there are the costs. International investing can be more expensive than investing in U.S. companies, he said.
You also need to consider currency exposure and controls.
“When exchange rates fluctuate, it can increase or reduce your investment return,” he said. “Foreign currency controls that restrict or delay moving currency out of a country.”
Criscione said international investments will include political, economic and social risk.
Then there are different levels of liquidity.
“Foreign markets may have lower trading volumes and fewer listed companies,” he said. “Some countries restrict the amount or type of stocks that foreign investors may purchase.”
If you have a problem you may not be able to seek a legal remedy because you may have to rely on local laws and not U.S. law, he said.
Looking at the big picture, the U.S. market accounts for roughly one-fifth of the global stock market in value, Criscione said.
He said while the precise allocation to foreign stocks will differ from one investor to another, most financial advisors will recommend a range of 15 to 25 percent in foreign stocks, depending on one’s appetite for risk and investment timeline.
“A 15 to 25 percent allocation is meaningful enough to make a difference but should not be too much to hurt if
foreign markets temporarily fall out of favor,” he said.
That said, there are many different ways to spread your international investments across multiple
countries. Exchange-traded funds and global mutual funds are the easiest because they don’t involve buying individual stocks or using foreign brokerage accounts.
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