How Much Should You Allocate to Foreign Stocks? | Bottom Line Inc (2024)

FAQs

How Much Should You Allocate to Foreign Stocks? | Bottom Line Inc? ›

Since US stocks account for about 60% of all world equity, some advisers recommend stashing 40% of your portfolio in foreign stocks.

In general, Vanguard recommends that at least 20% of your overall portfolio should be invested in international stocks and bonds. However, to get the full diversification benefits, consider investing about 40% of your stock allocation in international stocks and about 30% of your bond allocation in international bonds.

Depending on your return objectives and risk tolerance, your international allocation should be 5-25% of your total stock market investments and the international weighting necessary for truly global exposure is likely to increase over time as global trends become even more entrenched.

I read a Vanguard article that recommended at least 20% of the equity portion in international, and as high as 40%. Based on the 120 minus age rule, our equity should be 65%.

For years, a commonly cited rule of thumb has helped simplify asset allocation. According to this principle, individuals should hold a percentage of stocks equal to 100 minus their age. So, for a typical 60-year-old, 40% of the portfolio should be equities.

“Investing up to 20% of your stock portfolio in international stocks can help you diversify. Between 20% and 40%, your diversification improves, but at a lower rate. And because of the risks of international investing, an upper limit of 40% is wise.”

Something closer to 40%-50% is likely optimal for most investors.

The Reserve Bank of India (RBI) released guidelines under the Liberalized Revenue Scheme (LRS) that permitted an Indian Resident to invest up to 250000 dollars (around 1.9 crore rupees) per year without any special permissions.

International stocks offer U.S. investors diversification, reducing reliance on domestic markets and potentially enhancing returns. Non-U.S. stocks can provide exposure to global economic growth, mitigate geopolitical risks and tap into industries not heavily represented domestically.

Investors can access foreign stocks via ADRs, GDRs, direct investing, mutual funds, ETFs, and MNCs. Buying foreign stocks allows investors to diversify their portfolio's risk, in addition to giving them exposure to the growth of other economies.

Do I need foreign stocks in my portfolio? ›

Foreign stocks are currently less expensive than US stocks on a relative basis. You'll pay less for each dollar of earnings from foreign stocks. Diversification matters, and including foreign stocks in your portfolio could improve your risk-adjusted returns.

In other words, the Rule of 20 suggests that markets may be fairly valued when the sum of the P/E ratio and the inflation rate equals 20. The stock market is deemed to be undervalued when the sum is below 20 and overvalued when the sum is above 20.

An overview of the so-called New York Stock Exchange (NYSE) 20% rule requiring stockholder approval before a listed company can issue 20% or more of its outstanding common stock or voting power.

Stock allocations by age

Investors in their 20s, 30s and 40s all maintain about a 41% allocation of U.S. stocks and 9% allocation of international stocks in their financial portfolios. Investors in their 50s and 60s keep between 35% and 39% of their portfolio assets in U.S. stocks and about 8% in international stocks.

The 60/40 portfolio dictates a simple split of your assets— 60% for stocks and 40% for bonds. This asset allocation is simple to apply and understand, which may appeal to investors who prefer more of a hands-off approach.

It's our simple guideline for saving and spending: Aim to allocate no more than 50% of take-home pay to essential expenses, save 15% of pretax income for retirement savings, and keep 5% of take-home pay for short-term savings.

Before choosing the best foreign stocks, funds or ETFs to invest in, you need to decide how much of your overall equity portfolio to allocate overseas. Since US stocks account for about 60% of all world equity, some advisers recommend stashing 40% of your portfolio in foreign stocks.

International stocks offer U.S. investors diversification, reducing reliance on domestic markets and potentially enhancing returns. Non-U.S. stocks can provide exposure to global economic growth, mitigate geopolitical risks and tap into industries not heavily represented domestically.

“Ideally, you'll invest somewhere around 15%–25% of your post-tax income,” says Mark Henry, founder and CEO at Alloy Wealth Management. “If you need to start smaller and work your way up to that goal, that's fine.

U.S. large-company stocks are expected to return 6.2% annually over the next 10 years, trailing the expected 7.6% return for international large-company stocks. The driving force behind this modestly higher outlook for international stocks is their more attractive valuations compared to their U.S. counterparts.