Scott Burns - SWRs and Int'l Diversification

[BigMoneyJim]

I find the differences of opinion here interesting.

Personally I opted out of international stock funds a while back largely because I don't understand them. I also rationalize that much of the S&P 500 does business internationally and will benefit from improved economies in other countries.

Another rationalization is that I'm not going to try to outperform the US economy by investing internationally because even if the US economy crashes I live here and would benefit form the reduced costs. Or put another way, by saving and investing I'm still financially better off than most of my peers no matter what the economy does.

By the way, my reaction to Intercst's post was to feel validated for avoiding international stock funds.

[wabmester]

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Personally I opted out of international stock funds a while back largely because I don't understand them.

I can't argue with that. Nobody should invest in something that they don't feel they reasonably understand. Of course, if most people followed that advice, there wouldn't be many individual investors in the stock market.

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I also rationalize that much of the S&P 500 does business internationally and will benefit from improved economies in other countries.

That's true, too. But the fact that we run a trade deficit means that other countries benefit more from our improved economy than vice versa. There's also the covariance argument that the MPT world loves. But to me, it's more of a sector bet. Pick a few countries that have a better demographic profile than the US, stronger GDP growth, or even lower P/E multiples.

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Another rationalization is that I'm not going to try to outperform the US economy by investing internationally because even if the US economy crashes I live here and would benefit form the reduced costs. Or put another way, by saving and investing I'm still financially better off than most of my peers no matter what the economy does.

Personally, I don't consider it heroic to go down with the ship. I'll be the guy with the inflatable raft (hoping I don't need to use it).

[unclemick]

I am in the distribution phase(retired) - so as in the Scot Burn's article my international is small and 'out of the can' in a balanced index fund.

BUT - a sector bet via a closed end country/area fund or other mechanism is not off the table - provided I 'believe' I understand what I'm betting on. Dividend's would be high on my checklist. And of course, heh, heh - 'international mutlinationals'.

[Ed_B]

I keep about 15% of my stock portfolio in international funds. For me, this is less about improved performance and more about reducing volatility. From what I have read, many foreign stocks are not well synched to the US stock market. Given that, having a slice of international funds in a portfolio that is mostly US stock funds should result in lower volatility than a similar portfolio that is 100% in US stock funds. I would not have more than 20% in international funds but I do think that there is a place in most portfolios for good international stock funds. Costs can be significant with many international funds, so a close eye needs to be kept on this if reasonable performance is to result.


Ed_B