Investing in foreign equities

Do you invest in foreign stocks?  If you do, what is the percentage of your equities are in foreign stocks?  As I mentioned on Managing My Asset Allocation between Different Accounts post, foreign/international stocks account for 40% of my equities part of my portfolio.

Walter Updegrave, editor for Money Magazine, discussed about Dipping your toe into international waters on Money Magazine Ask the Expert column.  One of the reason for investing in foreign stocks is diversification.  While there is certainly correlation between international stocks and U.S. stocks, it is still different enough.  You also get currency diversification by investing in foreign equities. As you can see, the U.S. dollar over the past four or five years has seen declined when compared to currently such as Euro.  Thus the money invested in international stocks has seen some rises due to the rise in the value of Euro when compared to U.S. dollar.

Walter Updegrave also pointed out that U.S. stock market accounts for only 30% to 40% of global stock values.  That shows huge numbers of opportunity.  Also, there are likely more growth on those places, especially in emerging markets.  Those economies should have more upside than U.S. economies.  Of course it may come with more risks and more volatility, but I think with proper diversification and limited portion of your investments in riskier emerging markets and more toward developed market, you can manage those risks.

How should the money invested in foreign stocks?  Well, I am not financial advisors and not qualified to give advises, but I can share with you what I did.  I invest mainly in index funds and that includes international equities.  I don't invest in just global funds, such as Vanguard Total International Funds.  I think to get more growth, some portion should be in emerging market, some in International small cap and value.  You can look at my target asset allocation that I posted few days ago.