When it comes to investing, most of us have nowhere near as much international exposure as we should. We tend to focus on U.S. stocks because we're familiar with U.S. companies and the fact that our nation's economy is so strong.
If the goal, however, is to build a portfolio that reflects the global stock market, then whatever amount you've allocated to equities would be split pretty equally between U.S. and international.
Based on market capitalization, U.S. stocks represent just more than half the world's equity market. Non-U. S. developed countries (Japan, Europe, Australia, etc.) represent about 35 percent; emerging markets make up the rest.
In terms of gross domestic product (GDP), our slice of the global pie is even smaller.
Yet the average U.S. investor holds nearly four times as much in U.S. equities than international.
Most investors and advisers build an asset allocation that they feel represents an appropriate mix of stocks, bonds, and cash. But too often, the conversation ends without enough talk about geography.
Being overweight in U.S. equities isn't inherently wrong. U.S. stocks have outperformed international stocks since the Great Recession. Since it bottomed in March 2009, the S&P 500 has generated average annual returns north of 17 percent. Non-U. S. developed and emerging market equities, have averaged 10-11 percent per year during that same time.
Being overweight in the U.S. in that time may have benefited your bottom line, but smart investors won't let that stop them from boosting international exposure going forward.
The timing appears especially attractive given the disparity in current valuations. By several measures, including price-to-earnings (P/E) ratios, non-U. S. stocks are priced more attractively than U.S. companies. And that's not considering the tailwinds created by ongoing economic stimulus in Europe and diminishing political uncertainty in the eurozone.
It's true a weaker U.S. dollar has helped international stocks outperform U.S. counter- parts year-to-date. But for those investors concerned it may be too late to increase International equity exposure, consider the length of the current bull market in U.S. stocks (8 ½ years and counting). We're talking about a long-term strategy.
So, how much International should you own?
That's a question to ask a trusted financial adviser, but for the typical U.S. investor, there's a strong chance that the answer will be: "More than you have right now."
Ben Marks is the chief investment officer at Marks Group Wealth Management in Minnetonka.
