The Digerati Life (RSS Feed) just keeps giving me more to write about. This time she presents an excellent article on international investing. In the article she gives great table relating your international asset allocation to a risk tolerance. If you have 25% of your money outside of the US, you are considered an aggressive investor. If you are an investor looking for moderate risk you would put 15% of your money outside of the US.
Recently, I've been thinking that this strategy may be based more on historical performance than what lies ahead. It seems to me that the world is getting more and more globally minded each day. Perhaps it's because transportation is faster and cheaper than it's been in the past. Perhaps it's because the Internet makes international communication instant and essentially free.
If I said that I was going to put 85% of my money Spain, you'd probably think I was crazy. Isn't it odd that Americans (myself included) are willing to put 85% in America? This just doesn't seem like a very good diversification plan. If the economy in America goes downhill, you might possibly lose your job and your investments. If the potential of losing your job and your investments sounds familiar, it's because it happens to those who invest their 401k in their own company's stocks. That's what happened to many Enron employees.
Given my relatively young age, I don't think it's all that crazy to put up to half my money in a variety of companies that are based around the world. It gives me good diversification if any one country experiences hardship. There was a time when it was very expensive to invest money internationally. The fees would could be 1.5% or higher. However, there are some very cheap options now including Vanguard's new Europe Pacific ETF (symbol: VEA). It has an expense ratio of 0.15%, making it a very cheap way to move a lot of money into a lot of developed countries.
WhatÂ percent of your money would you put in international invents?Â Let me know in the comments.
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