Right and Wrong Reasons to Own International Stocks
Right and Wrong Reasons to Own International Stocks
I’m finding people are more receptive to my long-standing recommendation of having a third of their equities in international stocks than they were a year ago. Often they tell me they are concerned about the political turmoil in the United States, and they figure that the lackluster performance of international stocks in the past few years means they are now due to soar. Considering no one knows the future, these are the wrong reasons to own international stocks. In my experience, people tend to rationalize why they buy an asset class that has recently done well. In 2007, for instance, as international stocks surged, it was a challenge to get clients to limit their exposure to these stocks. The sort of comments I heard then was something like, “Why only a third since nearly all of the growth is coming from overseas?” Last year was just the opposite mind-set. Persuading investors to own much in the way of international stocks was the challenge as concerns turned to all of the problems overseas such as Brexit. Small investors — and even professionals — do chase performance. And they pay a price for their bad timing, says Russel Kinnel, director of manager research at Morningstar, an investment research company. His shows that the typical investor has underperformed the average fund for the past decade. Sticking to an asset allocation strategy typically works better than making frequent changes.
Right and Wrong Reasons to Own International Stocks
Getty Images Is investing globally important? have been on a hot streak this year, nearly doubling the return of their U.S. peers. With such a tempting return — about 14 percent for the first five months — is now the time to stock up on international equities? Before answering this question, let’s first consider past performance. This chart shows international stocks were on fire from 2003 to 2007, but have been laggard in the past few years through the end of 2016. Since many now believe are more attractive than the U.S. equities, could this be the beginning of a period when international stocks outshine ? AARP Membership:I’m finding people are more receptive to my long-standing recommendation of having a third of their equities in international stocks than they were a year ago. Often they tell me they are concerned about the political turmoil in the United States, and they figure that the lackluster performance of international stocks in the past few years means they are now due to soar. Considering no one knows the future, these are the wrong reasons to own international stocks. In my experience, people tend to rationalize why they buy an asset class that has recently done well. In 2007, for instance, as international stocks surged, it was a challenge to get clients to limit their exposure to these stocks. The sort of comments I heard then was something like, “Why only a third since nearly all of the growth is coming from overseas?” Last year was just the opposite mind-set. Persuading investors to own much in the way of international stocks was the challenge as concerns turned to all of the problems overseas such as Brexit. Small investors — and even professionals — do chase performance. And they pay a price for their bad timing, says Russel Kinnel, director of manager research at Morningstar, an investment research company. His shows that the typical investor has underperformed the average fund for the past decade. Sticking to an asset allocation strategy typically works better than making frequent changes.