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Foreign Stocks Pct in Portfolio
Old 10-31-2009, 12:02 PM   #1
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Foreign Stocks Pct in Portfolio

Here is a worthwhile overview of the current thinking of using foreign stocks to bring diversification to your portfolio.
Significant to note the increase percentages from what used to be 5-10% are nowup to 40-50%. The "sweet spot" seems to be in the 30% area.

"But while an allocation to foreign stocks generally reduces a portfolio's risk over the long term, it can also increase risk, especially over shorter periods. Our research showed that the possibility of greater risk, especially for short investment horizons, jumped when allocations to developed market foreign stocks exceeded 30% of the total stock portfolio.
As a result, we believe devoting 30% of your overall stock exposure to international makes the most sense. This level provided nearly all (94%) of the diversification benefits that a 40% international allocation did, with a lower chance of increasing risk over shorter time periods."

It is on the home page of Fidelity and does not require log-in Fidelity Investments:.

I found the results particularly interesting since my Fido adviser a couple of months ago suggested my near 20% allocation to International was a bit "risky".
One other thought to pass along. Note to get the full benefit of International investing you want to check to be sure the funds you choose do not include US. Many of the "global" funds have a significant share of their portfolios in US stocks.

Nwsteve
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Old 10-31-2009, 04:23 PM   #2
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Something pretty odd to me- what is my foreign is someone else's domestic. So how can the exact same portfolio be optimal for me and horribly risky for some guy in London?

Currency exchange I guess.

Ha
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Old 10-31-2009, 05:48 PM   #3
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Our portfolio is about 5% foreign stocks.
However, our exposure to foreign markets is much higher when you consider the large US companies that are international.
For example, if China is doing well, it will likely help out GM (once they offer stock again), Catapillar, Coke(?) and others.
We will likely pick up another 5% or so in foreign stocks in the next few years to beef up our foreign market exposure.
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Old 10-31-2009, 06:43 PM   #4
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Originally Posted by nwsteve View Post
Here is a worthwhile overview of the current thinking of using foreign stocks to bring diversification to your portfolio.
Significant to note the increase percentages from what used to be 5-10% are nowup to 40-50%. The "sweet spot" seems to be in the 30% area.

"But while an allocation to foreign stocks generally reduces a portfolio's risk over the long term, it can also increase risk, especially over shorter periods. Our research showed that the possibility of greater risk, especially for short investment horizons, jumped when allocations to developed market foreign stocks exceeded 30% of the total stock portfolio.
As a result, we believe devoting 30% of your overall stock exposure to international makes the most sense. This level provided nearly all (94%) of the diversification benefits that a 40% international allocation did, with a lower chance of increasing risk over shorter time periods."

It is on the home page of Fidelity and does not require log-in Fidelity Investments:.

I found the results particularly interesting since my Fido adviser a couple of months ago suggested my near 20% allocation to International was a bit "risky".
One other thought to pass along. Note to get the full benefit of International investing you want to check to be sure the funds you choose do not include US. Many of the "global" funds have a significant share of their portfolios in US stocks.

Nwsteve
Could it be that he was talking about 20% of your asset allocation being risky, instead of 20% of your stock exposure? For example, 35% of my stock exposure is international, but since I have a lot of bonds and cash that comes to 16% of my asset allocation for my entire portfolio.

I found the information you quoted to be interesting, as I have always thought I had more of a U.S. tilt (a smaller fraction of international) than many. Guess not.
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Old 10-31-2009, 07:10 PM   #5
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I was aiming for 1/3 equity exposure for international stocks and set up my AA that way, but when I discovered via M* X-ray that I was closer to 50% foreign stocks due to many mutual funds having some exposure, I cut back a bit so that my X-ray view would be closer to 33%.

On top of that, a lot of US "domestic" stocks are actually multinationals with huge sales from overseas, AND a bunch of US companies who are not multinationals still get a pretty good chunk from foreign sales.

So I expect my exposure to international is still even larger than what the M* X-ray shows.

I just consider international holdings to be something to rebalance against domestic holdings.

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Old 10-31-2009, 07:16 PM   #6
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Still 50/50 here. See Bernstein and the efficient frontier and Merriman:
FundAdvice.com - Should you still own international stocks?
and fig 4 here:
http://www.fundadvice.com/fehtml/bhs...309/0309a.html
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Old 10-31-2009, 07:35 PM   #7
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Thanks for posting that link. Pretty well matches the Fido study. Not sure I am ready for 50% but certainly makes me even more comfortable to push my allocation higher. With all the 4% conversations we have on this Board, kinda interesting to see how robust of ending balance, were generated even with 8 and 9% withdrawal rates. Those tables were really striking in that the ending balance all exceeded the starting 1 mill when you at least 30% in foreign.
As noted by Audrey1,The M* XRay is great way to see to what degree your non-foreign MF are putting assets off-shore and is a great idea to keep from getting over-exposed.
I agree with W2Retire that it is important to differentiate AA from equity allocation.
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Old 10-31-2009, 08:36 PM   #8
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Audrey, I had the same experience with M* X-Ray. I was amazed to find out how high my international exposure was! In my case I decided I was happy with the higher international exposure.

M* says that 16% of my portfolio is international equities. My original plan, and what I had previously thought that I had, was 13%, and I had been thinking that was lower than I wanted. So, 16% suits me nicely and I didn't have to do a thing to make that adjustment.
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Old 11-01-2009, 07:43 AM   #9
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Originally Posted by Ed_The_Gypsy View Post
Still 50/50 here. See Bernstein and the efficient frontier and Merriman:
FundAdvice.com - Should you still own international stocks?
and fig 4 here:
FundAdvice.com - The perfect portfolio
Same here -- half of my equities are international. To me, the question is whether one should have an even higher % of international (greater than 50%).
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Old 11-01-2009, 09:18 AM   #10
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Lakedog, I think I understand your concern, but it isn't a good idea to write off the biggest economy in the world. With all its faults, there ain't more horsepower anywhere else in the world than the US.

Ed
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Old 11-01-2009, 03:13 PM   #11
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U.S. or ex pat? Accumulation or decumulation - aka retirement?

My new new tongue in cheek portfolio over at Bogleheads forum(I couldn't bring myself to pssst Wellesley twice, besides it's value not index) is:

Vanguard Total World Stock Index and some fixed in the currency of wherever you are at. Laugh at it or laugh all the way to the bank - depending - cause inception was 2008 and the rollercoaster has barely started running. It's a brain exercise or no guts/no glory future test depending on your viewpoint.

Me - Kansas City, 16th yr of ER wrapping up, age 66 - lead sled dog Target Retirement 2015 plus 40% good time income from early SS and small non cola pension. With a few Norwegian widow dividend stocks on the side. Theory - hold 3% minimum SEC yield and or cut expenses in hard times to make SS/pension cover a higher % of core budget.

Now on this forum? Pssst Wellesley to jump start the brain cells plus look at the SEC yield.

heh heh heh - I believe there's a ?Swede in Thailand? named Ben? who posted over at Raddr's forum who got me looking at 3% minmum portfolio yield as a useful benchmark(in $ for me).
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Old 11-02-2009, 03:07 PM   #12
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I've been 50% foreign, but I've been edging closer to 60% recently (I'm at 43% US equity per Fidelity/M*). The US market is less than 50% of the total world market now. Nontheless, I want to stay somewhat close to balanced, so I won't follow it past 60%. Most recently I followed the trend (usually a bad idea!) and increased my emerging market allocation by 2% to 12%. I think that still understates the size of that market, so maybe I'll take it higher later if it doesn't go crazy.
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Old 11-07-2009, 08:29 PM   #13
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Originally Posted by nwsteve View Post
Significant to note the increase percentages from what used to be 5-10% are nowup to 40-50%. The "sweet spot" seems to be in the 30% area.
Interesting how that happens after a period of relative outperformance. What I'd really like to see is people recommending increasing allocations to things that haven't done so well recently . . . REITs anyone?
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Old 11-07-2009, 09:02 PM   #14
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I'm staying with a very modest percentage of foreign--approx 15%. I might increase this in coming years. Rationale:
- I do believe that exposure to large US international companies does bring de-facto exposure to foreign markets and also many of the competitive advantages experienced overseas (lower labor costs, etc)
- I don't need much exposure to foreign currency risk. Almost all my expenditures are in the US (though I buy a lot of foreign made goods, as most of us do).
- I'm not sure that I buy the argument that just because XX percent of total global economic activity is in the US, that my equities should be similarly weighted. Although recent events have certainly highlighted flaws in the US financial system, we've got a lot of advantages here regarding capital availability. In addition, I think the accounting standards, laws protecting private property, and the efficient trading environment give investors a significantly better "deal" than they get in many other countries. I don't really mind missing the opportunity to invest in highly profitable foreign ventures if the companies are likely to be nationalized or the stock prices are based on phony books. We've got problems here, but they are worse in most other places.
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Old 11-08-2009, 09:01 AM   #15
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My international exposure is 31% of equities overall (20% total intl & 11% emerging markets). That and a nickel...
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Old 11-08-2009, 09:21 AM   #16
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Interesting how that happens after a period of relative outperformance. What I'd really like to see is people recommending increasing allocations to things that haven't done so well recently . . . REITs anyone?
I haven't increased my REIT allocation but did buy some recently as they have lagged other equities so were falling behind in my AA. I'm also 50:50 US:international.

DD
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Old 11-08-2009, 03:55 PM   #17
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My allocation to foreign equities is 67% now, perhaps the lowest since I began investing, and I expect it will be below 50% within a year as I shift allocation away from small and emerging (at 100% foreign) to large cap (mostly US). My feeling is that international small makes more of a difference than international large, as most mega corps in the developed world compete in the same marketplace and therefore are more highly correlated.
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Old 11-12-2009, 11:45 AM   #18
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What I can't wrap my mind around is the fact that everyone wants to manufacture everything outside of the US, ship it back, and we want to buy it. So, how does it not work out better to set up a company outside of the US, and therefore, why would we not want to invest in those companies?

Oh, that's right, because China doesn't let us invest in China very easily.

-CC
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Old 11-12-2009, 10:55 PM   #19
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If you like the simplicity of balanced funds but do not like the low 20%
max used by most of Vanguards more agressive funds, take a hard
look at Vanguard's Managed Payout funds. They use about 30%
foreign equity last time I looked.

They lash me severly about the head and shoulders on the Boglehead
forum when I mention Managed Payout, but I think they have better
diversification than any other balanced funds offered by VG.

Just don't let the "managed payout" name fool you into thinking they
are somehow safer than other funds with 60 to 80% equity.

Cheers,

charlie
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