A while ago, I asked the question: how much should we invest internationally? Ever since, I came to believe that I am over-weighted in U.S. equities at 72% invested. I believe that my international equities exposure should be closer to 50%, when you consider that the U.S. Gross Domestic Product only represents 20% of the world (sources: CIA.gov) and U.S. market capitalization only represents 29% of the world (source).
Photo by bast via Flickr
This sentiment was later confirmed by Larry Swedroe’s comment:
…I think the best way to address the issue is to make sure your investments are globally diversified and unhedged. So the way to do that is to include a large percent of international (non-Canadian) investments in your equity holdings. For Americans I typically suggest 50% international.
A few days ago, I received an email from Steve, one of my blog readers. In the email, he wrote:
I have recently decided that I have too much exposure to US equities and would like to diversify. The problem is that the asset classes I would like to add (developed foreign, emerging markets, REITs, commodities) have all had tremendous run ups over the past 5 years. I am buying for diversification, but in this case the result is the same as someone chasing performance. How would you recommend proceeding?
So Steve and I share a similar dilemma. If I change my asset allocation to increase my international exposure, am I:
I have been itching to make the move in my 401k plan, and as you can see it’s not an easy decision. To add to the problem above, here are other decisions that I have to make:
What would you do if you were in my shoes?