What's your allocation for International Stocks? (2024)

FAQs

What's your allocation for International Stocks? ›

For those who want international exposure, the generally recommended allocation is between 20% and market weight (approximately 40%). Anywhere in that range should be fine for diversification, but it's really anyone's guess going forward.

In general, Vanguard recommends that at least 20% of your overall portfolio should be invested in international stocks and bonds. However, to get the full diversification benefits, consider investing about 40% of your stock allocation in international stocks and about 30% of your bond allocation in international bonds.

The common rule of asset allocation by age is that you should hold a percentage of stocks that is equal to 100 minus your age. So if you're 40, you should hold 60% of your portfolio in stocks. Since life expectancy is growing, changing that rule to 110 minus your age or 120 minus your age may be more appropriate.

Start by allocating 15% to 20% of your equity portfolio to foreign stocks. That's the percentage I typically maintain in the Vanguard portfolios. It's meaningful enough to make a difference in your overall returns, but not so much that it will ruin your portfolio when foreign markets temporarily fall out of favor.

International stocks offer U.S. investors diversification, reducing reliance on domestic markets and potentially enhancing returns. Non-U.S. stocks can provide exposure to global economic growth, mitigate geopolitical risks and tap into industries not heavily represented domestically.

For example, if you're 30, you should keep 70% of your portfolio in stocks. If you're 70, you should keep 30% of your portfolio in stocks. However, with Americans living longer and longer, many financial planners are now recommending that the rule should be closer to 110 or 120 minus your age.

Stock allocations by age

Investors in their 20s, 30s and 40s all maintain about a 41% allocation of U.S. stocks and 9% allocation of international stocks in their financial portfolios. Investors in their 50s and 60s keep between 35% and 39% of their portfolio assets in U.S. stocks and about 8% in international stocks.

In the 1980s, stashing 10% or 20% of a stock portfolio in international markets was considered enough. Today, most experts would consider that too little. Indeed, in the model portfolios offered in the investing chapter, 50% of the stock market money is in foreign stocks.

Key takeaways

Despite short-term obstacles, Fidelity researchers expect international stocks to potentially outperform US stocks over the next 20 years. The biggest opportunities may be in emerging market stocks, particularly Chinese companies. But there are pockets of potential in developed markets too.

The outperformance by international stocks continuing in the second half of 2024 may be supported by the ongoing economic recovery in Europe, faster earnings growth, and more attractive valuations. A stable or falling U.S. dollar would also benefit the performance of international stocks for U.S.-based investors.

What are the best international stocks to invest in? ›

The moderately conservative allocation is 25% large-cap stocks, 5% small-cap stocks, 10% international stocks, 50% bonds and 10% cash investments. The moderate allocation is 35% large-cap stocks, 10% small-cap stocks, 15% international stocks, 35% bonds and 5% cash investments.

For those who want international exposure, the generally recommended allocation is between 20% and market weight (approximately 40%). Anywhere in that range should be fine for diversification, but it's really anyone's guess going forward.