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.

Earth

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
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.

Best Low Cost Stock Brokers

Featured Articles

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.

Leave a Reply

Your email address will not be published. Required fields are marked *

*

Disclaimer

The information on this site is strictly the author's opinion. It does NOT constitute financial, legal, or other advice of any kind. You should consult with a certified adviser for advice to your specific circumstances.

While we try to ensure that the information on this site is accurate at the time of publication, information about third party products and services do change without notice. Please visit the official site for up-to-date information.

For additional information, please review our legal disclaimers and privacy policy.

Notice

Moolanomy has affiliate relationships with some companies ("advertisers") and may be compensated if consumers choose to buy or subscribe to a product or service via our links. Our content is not provided or commissioned by our advertisers. Opinions expressed here are author's alone, not those of our advertisers, and have not been reviewed, approved or otherwise endorsed by our advertisers.