Investing in Foreign Stocks

Knowledge@Wharton has an interesting article on investing in Foreign Stocks:

… Siegel says the typical American investor should have 40% of his or her equity portfolio in foreign stocks, since many foreign markets have greater potential for growth than the well-developed U.S. market. "The U.S. will, over time, become a narrower and narrower slice of the world market. Just as you don't want to confine yourself to two industries in your portfolio, you don't want to confine yourself to one country…. I really advise broad diversification"

The gist:

  • Investing in foreign index funds might be better than managed funds because of their lower costs
  • Just as it is wise to diversify holdings across industries, it is wise to diversify across countries

I myself have positions in the Principal International Separate Account, a managed fund available through my 401-K plan and have made an annualized return of upwards of 30% on it.

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