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Keep Shopping Overseas

I believe that long-term investors will benefit by keeping at least 25% of their equity exposure in international stocks -- substantially more than the 7% currently in 401(k) plans. And using broad index funds like these is an excellent way of achieving international diversification.

International stocks and funds give investors exposure to markets that represent more than 50% of all stock opportunities in the world. That means that investors more than double their access to potentially exciting equity investments when they look at non-U.S., in addition to U.S., equity opportunities. Enlarging international exposure can provide more opportunity for growth, as well as give stronger diversification.

I'm also a proponent of international investments because of demographics. Over the next two decades, the U.S. population will age and consumer spending of many kinds will slow. By comparison, countries like India and Brazil will have great numbers of people moving into their peak consumer and investment years over the same time frame.

The price-to-earnings ratios for international stocks are attractive, and the concern about the migration from stocks to bonds is creating buying opportunities. If you can ride out periodic volatility, it's worth it to stay the course.

Using broad index funds, like the ones I listed above, are an excellent way of achieving international diversification. There also are a number of actively managed international funds that are attractive. I particularly like the (ARTKX) fund, the (DODFX) fund, the (ICEUX) and the (SILAX) fund.

If you have moved out of an emerging market position because of the speculative buildup, good for you. But don't discount this important equity category over the long term. When prices simmer down, you will most certainly want emerging market exposure in your portfolio.

In the meantime, take a close look at actively managed as well as index international funds that are not top-heavy in emerging markets. As 401(k) investors look for refuge in fixed income, this could be a good time to buy international positions for the long term.
Jim Schlagheck is a wealth management professional who has counseled ultra-high-net-worth families, endowments and pension funds in the U.S., Europe, and the Middle East. He is a former senior executive of American Express Bank, UBS AG, Bank Julius Baer, and TAIB Bank. During his career, Schlagheck launched a family of mutual funds (now holding $4 billion), led teams of financial planners and investment advisers based in New York, Bahrain, and Geneva, Switzerland, and helped many high-profile clients to protect and enlarge their wealth. Jim has a blog on investment topics www.invest-blog.com and is the author of "Show Me The Money!", a soon-to-be-published book that synthesizes his novel views about investing for retirement.
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