How Much Should You Invest Internationally?

How much should we invest internationally? That’s the question that I want to explore with you today. Last week, I posted What’s Wrong with this 401k Asset Allocation? and SJean commented that “25% international is risky” — a sentiment that is shared by a few other commenters. I don’t agree with the comment and want to get your input regarding what percentage of our portfolio should be allocated to international equities.


Photo from NASA

A quick search landed me on The Digerati Life where she offers a chart that shows foreign exposure from 25% as “aggressive”, down to 0% a “very conservation”. In it, she also offers 5 points on the risk and cost involved.

As I continued my search, I also found this cool The U.S. Economic Map Vs. The World at The Global Guru. I don’t have the permission to show the map here, but you should give the article a read. This article gave me an idea to think differently:

What if we think of each country as a company stock?

According to the CIA, the U.S. economy was estimated to be $13 trillion in 2006 (purchasing power parity) and the gross world product (GWP) was $66 trillion. As such the U.S. as a company, represents nearly 17% of the total market capitalization. From this perspective, wouldn’t investing 75% in the U.S. equity market be considered risky when it only represent 17% of the gross world product?

Personally, 28% of my portfolio is invested internationally, and this is risky based on conventional wisdom. But from the perspective I provided, isn’t it a bigger risk to invest 72% of my portfolio solely in the U.S.?

About the Author

By , on Nov 21, 2007
Pinyo is the owner of Moolanomy Personal Finance. He is a licensed Realtor specializing in residential homes in the Northern Virginia area. Over the past 20 years, Pinyo has enjoyed a diverse career as an investor, entrepreneur, business executive, educator, and financial literacy author.

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Leave Your Comment (26 Comments)

  1. Jonathan says:

    Right now, investing 25% internationally is probably a safer bet given the huge drop in US stock markets, although these are only temporary and I think they will recover within a few short years.

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