Should a retiree own International funds?

[Tiger]

Some people on another web site feel that a retiree should not own international or emerging market funds due to the risk. What do you think?

Also do you think that multi-sectior bond funds belong in a retiree's portfolio?

 

[braumeister]

Right now, I think a person would be very unwise NOT to own international securities.

 

[DblDoc]

Some people on another web site feel that a retiree should not own international or emerging market funds due to the risk. What do you think?

I think the benefit of owning international/EM outways the risk of concentrating all your equities in domestic.

Also do you think that multi-sectior bond funds belong in a retiree's portfolio?

Take your risk on the equity side. Stick to quality bonds for fixed income. See how gov't short and int bonds did during the meltdown.

DD

 

[W2R]

Some people on another web site feel that a retiree should not own international or emerging market funds due to the risk. What do you think?

I own both, though I own more domestic than either of these. I am retired, so that demonstrates what I think.

 

[kcowan]

I would think that holding corporate bonds in emerging economies would carry less risk beause those economies are growing like we used to. Brazil, China, India.

 

[rescueme]

FWIW, I'm retired (DW soon will be), and we hold 15% foreign equities between us.

We would never hold just one stock/fund, so why would we only invest in one country - retired or not?

Disregarding the rest of the world, and the various markets make little sense, IMHO.

 

[eytonxav]

For many, I would say international/EM equities and multi-sector bonds makes sense. From my perspective, diversification is a good thing.

 

[Animorph]

Less risk for now, maybe. Will they tell you when it is time to make that investment?

As part of a diversified portfolio, I believe you are reducing your total portfolio risk by including those international funds in your portfolio. They have about the same average annual returns and will behave somewhat differently over longer periods of time. Ideally, you would like portfolio components that really varied like crazy (one definition of risk) so that you could rebalance and increase your return significantly. You just don't want them to do the same thing all the time. Which is exactly what more U.S. equities added to a U.S. equity portfolio are guaranteed to do.

Also, imagine doing that in Japan, Japanese equities only, where returns have been crummy for a long time. We may be heading in that direction in the future, while EM's may look more like the U.S. of the past. You don't know who's going to do best. Spread your bets.

 

[WilliamG]

In the last year or so even stodgy old Vanguard has upped their recommended international holdings and upped the holdings in their target funds accordingly. Used to be 20% of equity holding, now 20-40% (average 30%). Fyi we have 30% of our "pure" equity fund holdings in international.
1/3 Vanguard Stock Indices (10% Total International)
1/3 Wellesley
1/3 Bond
Total portfolio 45/55 so international is a little over 22% of stock holdings when including Wellesley stock portion.

 

[mickeyd]

Some people on another web site feel that a retiree should not own international or emerging market funds due to the risk. What do you think?

Also do you think that multi-sectior bond funds belong in a retiree's portfolio?

It all depends on what your IPS says about international investing (I assume you are refering to equities tho OP does not say). I'm in for 20% of equities in my AA, which has served me well so far. To each his own, tho.

As for multi-sector bond fund? What sectors are we talking about? My FI are situated in the old, boring Vanguard Itermediate-Term Bond Index fund and TIPS fund. Not a big fan of getting fancy with my FI stuff.

 

[easysurfer]

40% of my equities portion is in international. To make it simple, I go with a total international funds.

 

[LOL!]

If one does NOT invest in international equities (via an index mutual fund), then one is missing out on a large part of the US economy since international companies do quite a lot of their business here in the US.

The argument that some folks make that many US companies have lots of overseas exposure so you don't need international exposure by owning foreign companies is simply false.

Half of our equities are in mutual funds that invest in foreign countries. That's means we slightly overweight US stocks and slightly underweight foreign stocks with respect to world stock markets weights.

And while I like emerging markets, one must always be aware that just because there is growth does not mean that there are gains for stock market investors. And that's especially true in countries where the rule of law can be iffy.

 

[steelyman]

Still smarting from the '08-'09 crash, I made the mistake (likely) of selling a considerable amount of my holdings in Fidelity's total international stock and emerging markets funds back in Spring '10 when the European issue first flared up. I have been waiting since then for an opportunity to get back in (still haven't, so my international percentage is currently quite small). Shame on me, but I think that international belongs in a retirement portfolio in a percentage one is comfortable with.

 

[mickeyd]

Shame on me, but I think that international belongs in a retirement portfolio in a percentage one is comfortable with.

That should apply for all investments at all times should it not?

 

[steelyman]

That should apply for all investments at all times should it not?

For sure. It was time to rebalance, not to bail. Lesson learned!

 

[Tiger]

I asked the question to see if anyone here agreed with what I read on the other site. 30% of my equities (15% of total portfolio) is in VTIAX.

 

[veremchuka]

You want non correlated holdings for diversification. Domestic and foreign used to be more non correlated in the past but foreign holdings are still important. That "other site" has some odd ideas IMO. I have 35% in equity mutual funds and of that 75% is domestic in Vanguard TSMI and 25% is foreign in Vanguard TISMI.

 

[obgyn65]

Please could you kindly explain why ?

Right now, I think a person would be very unwise NOT to own international securities.

 

[Lancelot]

I own both, though I own more domestic than either of these. I am retired, so that demonstrates what I think.

Same here, about 13% of my portfolio is comprised of Vanguard International Funds: 1. Emerging Markets; 2.Europe and 3. Pacific.

 

[RunningBum]

If one does NOT invest in international equities (via an index mutual fund), then one is missing out on a large part of the US economy since international companies do quite a lot of their business here in the US.

The argument that some folks make that many US companies have lots of overseas exposure so you don't need international exposure by owning foreign companies is simply false.

Could you expand on these two points? They seem contradictory.

For the record, I'm about 35-40% international.

 

[rescueme]

Could you expand on these two points? They seem contradictory.

I didn't make the statement, but I do agree with it.

A lot of drug companies sell their products here, but the development/sales are based in another country.

Take VG Health Care (Investor series - VGHCX). It's currently our top performer YTD (+16.44%) and is made up of foreign holdings (19.27%).

An example in heavy industry? Mack Trucks (you know, the one with the bulldog on the front) is owned by Volvo AB in Sweden (not Volvo car - that was spun off years ago, first to Ford (US), and then to a company based in China (Zhejiang Geely Holding Group).

A lot of "products" that have been previously known as "American" (more specifically U.S.) no longer are owned by US based companies. Sure, they may produce products for the US market, but the top management (along with the profits) are offshore.

That's why I/DW invest in funds that contain companies that are international in nature.

I believe the comment was that many folks invest in US companies with foreign exposure but never consider the "other side of the coin" - that is investing in foreign companies with a lot of US exposure.

It's a global marketplace. To insure diversity in investing it's a good idea (IMHO) to "place your bets" across the board - much like roulette.

 

[chinaco]

Good Question.

It seems that most of the advice I have read over the last decade suggests that the stock portfolio should have international exposure for diversification and, perhaps, growth.

Other countries are developing and growing.

Still, not all countries are the same... in terms of risk associated with them..

You can look around and see the allocations used by certain mutual funds. There seems to be no shortage of "experts" offering allocation advice. You should do some research and develop a plan that you are comfortable with.

I keep in mind that many US based companies are really multi-national corporations. They provide some exposure to other countries. This makes it a little difficult to completely understand one's exposure (easily). I tend to think of this as an indirect allocation.

For example:

New York, August 5, 2010 – After three consecutive years of rising foreign sales, S&P 500 companies with full reporting information posted 46.6% of their sales from outside of the United States in 2009 down from the 47.9% recorded in 2008, Standard & Poor’s, the world’s leading index provider, reported today. The data is derived from the 250 companies within the S&P 500 that have full reporting information.

https://www.sp-indexdata.com/idpfiles/indexalert/prc/active/pressreleases/2009 500 fgn sales v2.pdf

Of course the S&P 500 is composed of large cap. If you look there are probably similar figure for mid and small cap index companies.


A comment from the SEC:

[FONT=Verdana,Arial,Helvetica]Keep in mind that even if you only invest in stocks of U.S. companies you already may have some international exposure in your investment portfolio. Many of the factors that affect foreign companies also affect the foreign business operations of U.S. companies. The fear that economic problems around the globe will hurt the operations of U.S. companies can cause dramatic changes in U.S. stock prices.[/FONT]

International Investing


Our current direct allocation (those funds invested directly in foreign based companies) in stock is about 10% of all securities and about 22.5% of the stock.

But our indirect investment is not as well quantified. If 1/2 of S&P 500 companies had 40+% of their sales from other countries.... I may have more international stock exposure than I know about (or at least have quantified). I am sitting tight for now. Once I get a better understanding of how to analyze it. I will make some adjustments.


Anyone know of a good (easy way) to do this analysis and track it?.... for allocation purposes!

 

[rescueme]

Anyone know of a good (easy way) to do this analysis and track it?.... for allocation purposes!

Easy (for me) - but not necessarily inexpensive, in some people's minds

M* X-Ray, with the Interperter and World Region Holding Breakdown Detail (something much beyond the "free X-Ray" you can get from some sites), under the M* portfolio analysis tools.

One of the (many) reasons I keep getting my M* subscription (at $115/year via the FIDO discount) ...

Maybe not for you, but since you asked...

 

[kcowan]

That is why I suggest to focus. The US multinational is probably doing business in Europe predominantly and so to achieve real diversification, Brazil, China and India bring some balance.

 

[braumeister]

Please could you kindly explain why ?

Simply to diversify the holdings. Some of my best returns in recent years have been from Canadian, Swiss, and Swedish securities. Their currencies have also been extremely strong against the dollar, and they're extremely stable countries. What's not to like?