How Much Should You Invest Abroad?
With stocks tanking recently in places like
The enthusiasm for overseas investing represents a big change from traditional views. Beginning in the 1950s, many academics argued that investors should put only 10% to 20% of their equity assets in foreign stocks. According to the standard view, overseas markets sometimes rose when Wall Street was in decline. So foreign holdings could help to diversify a portfolio, cushioning downturns.
But overseas stocks were riskier than their
Now researchers have changed their ideas about the risks of foreign investing. At a time when many foreign companies dominate their markets, overseas stocks are not necessarily hazardous. Nokia—the Finnish cell phone giant—is no riskier than Motorola, its
Traditionalists contend that the
In the second half of the century, markets in the two countries were among the world leaders. “It is hard to know whether