Time to Put More Money in Foreign Funds?

With foreign markets sizzling in recent years, investors poured into international mutual funds. Now that markets appear shaky in countries like China and Italy, some shareholders are dumping their funds -- but they might be wise to reconsider.

A growing group of investment analysts argues that typical investors should keep at least 50% of their equity assets in foreign stocks. The analysts note that about 25% of all equity fund assets are in international funds.

"Very few individuals or institutions hold enough foreign stocks," says Burton Malkiel, a Princeton economist and author of the classic A Random Walk Down Wall Street.

Only a minority of experts advocate putting most assets abroad. But in recent years, plenty of investment pros have been raising their recommended foreign allocations. Financial advisers who once invested 10% of portfolios overseas are now raising the allocation to 20% or 30%.

The increased emphasis on foreign stocks can be traced partly to the growth of markets abroad. During the late 1990s, foreign shares accounted for about 30% of total world stock market value. Since then, the foreign total has climbed to about 56%, as markets such as India and Brazil have soared while Wall Street lagged.

Some advisers say that investors should steadily raise their foreign allocation as overseas markets grow.

"It is hard to predict whether the U.S. is going to outperform other equity markets going forward," says Stephen Evanson, a financial adviser in Carmel, Calif. "It's best to hedge your bets and make sure that your portfolio matches the weightings of global markets."

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