advertisement
"You definitely need overseas exposure. The percentage depends on how conservative or aggressive you are. There are three factors in this model, and they're the same whether they're U.S. stocks or overseas: How much exposure you have -- how much of the portfolio is in stocks versus bonds, for instance. How much of it is in large companies versus small companies. And how much is in growth companies as opposed to value companies."
Traditionally, Flurry says, about 15% of a portfolio should be in foreign investments. That said, he advises conservative investors to put no more than 5% to 7% of their portfolios in overseas investments, while people who have a higher tolerance for risk might want to go out as far as 20%.
David Marotta of Marotta Asset Management in Charlottesville, Va., says currency fluctuations move in roughly 11-year cycles. The dollar has been tumbling since early 2002 with some minor reversals in 2004 and 2005. So, if we're in the midst of a typical cycle, we can expect the downward trend to continue for several more years.
Marotta's company protects clients against the falling dollar by using six asset categories; three for stability and three for growth. "The three we use for stability are short money, U.S. bonds and foreign bonds," says Marotta. "So, on the stability side we put half of our bonds in U.S. bonds and the other half in unhedged foreign bonds.
More from MSN Money and Bankrate.com
"On the appreciation side we have three categories: U.S. stocks, foreign stocks and hard-asset stocks. The U.S. stocks provide a little bit of hedging against the falling dollar, because when the dollar is worth less, it costs more to buy shares in a U.S. company. The foreign stocks are denominated in foreign currencies, and then you have a direct hedge against the falling dollar. We are very pro foreign investing. For most of our clients, we put half of their money in foreign stocks and half in U.S. stocks. If you were to invest in the way the world economy is, you'd put two-thirds in foreign and one-third in U.S."
Marotta likes to invest in 12 foreign economies that the Heritage Foundation says have as much, or more, economic freedom as the U.S. They are Hong Kong, Singapore, Australia, the United Kingdom, Switzerland, Canada, the Netherlands, Belgium, Japan, Germany, Sweden and Austria.
Marotta calls the foreign markets incredibly important to a well-balanced portfolio that's positioned to overcome a falling dollar. He also notes the importance of emerging markets, which he says outperform foreign markets, which outperform the U.S. market.
Video on MSN Money
Is an annuity for you?This 'do-it-yourself pension' provides steady income, but be sure you know what you're getting.
Marotta's asset allocation chart might help in balancing your portfolio. If your retirement portfolio is limited to a 401(k) with a dearth of options that has, say, one foreign fund, Marotta's suggestion would be to put half of your allocation into that one fund.
Another important category for hedging against a falling dollar is hard assets such as oil, natural gas, real-estate trusts, coal and water. They're hard assets because there are underlying assets that the company owns. Retail investors can add these to a portfolio through individual stocks, mutual funds or exchange-traded funds.
This article was reported and written by Laura Bruce for Bankrate.com.
Published Oct. 9, 2007
< previous | 1 | 2 |
Rate this Article
High
