Everyday, I probably read over 10 personal finance articles. Sometimes I’ll read an article on an important or timely topic that needs to be brought forward. And usually I’ll have an opinion on it too.
Should You Invest Internationally?
A June article from Zach at Four Pillar Freedom wrote on international investing. He was commenting on some tweets from Meb Faber. In the article, he discusses home-country bias and made this final conclusion in the article.
In fact, I’ve decided to switch from allocating 100% of my 401(k) contributions into a total U.S. stock market index fund to now allocating 50% to a total U.S. stock market index fund and the other 50% to a total international (ex-U.S.) stock market index fund.
My Opinion
As an American investor (an important issue for this article) companies have changed over the years on the international front. Technology has opened the world to U.S. companies and made international operations and revenue more accessible. And this has made international investing less important of an issue in my opinion.
American companies are much more international than they were prior to 2000. I understand wanting more international exposure in your 401(k) but 20-30% should be enough for today’s American investor. And investors building a portfolio of individual stocks need to take a different approach.
In my 401(k), I’ve got a Vanguard international fund to go along with the Vanguard Total Stock Market Index fund. International represents about 20% of my equity allocation in my 401(k). It’s a small portion but it provides me with some diversification.
As I build my taxable stock portfolio that consists of individual stocks, my approach is a little different than my 401(k). I don’t intentionally exclude international stocks in my taxable account but I don’t go hunting for them either.
Remember, I’m trying to keep my stock investment approach structured and fairly simple. So it’s very likely many of us could name the 10-15 non-U.S. companies that should be considered for investments.
I’ve got to be somewhat familiar with the name for it to get my attention. Easy to understand businesses, especially internationally, are critical. The three international companies on my Master Stock List fit that description: Nestle, BP, and Royal Dutch Shell.
Most of the stocks on the master stock list have significant international exposure. Seriously, take a good look at them and you’ll understand. Johnson & Johnson, Coca-Cola, McDonalds, 3M, and many others all have a good percent of their revenues coming from their international operations.
Conclusion
If you have a 401(k) or company sponsored plan, investing a portion in international funds is a valid approach. I still think today’s large U.S. companies have enough international exposure to keep our weighing to ~20%. If I lived in another country then I’d probably think differently.
For individual stocks, my approach is a little different. I’m looking for strong companies, brands, and dividends located within stable and investor friendly countries. We can’t forget that companies within the S&P 500 generate over 40% of their sales from their international operations. That’s plenty and why I’m not feeling the need to bring more international into my portfolio.
And when I’m looking, sometimes that leads me to international companies that make my Master Stock List. Over time, I’m sure my list will include more international companies but today there are only three.
There’s a ton of research and opinions on the subject of international investing. Remember, “Google is your friend” (Or is it? Sorry, a bad data privacy joke) and I recommend you do your own research on the topic.
Thanks for reading!
Mr. TLR