New Retirement: Focus on Foreign Stocks
As we've seen over the past few weeks, global events can impact different markets in many ways, making diversification even more important.
So when it comes to your retirement fund, just how much should you have invested internationally?
Just over 20 percent of equity assets in 401k plans are in international equities, while domestic equities make up nearly 4 times that amount, according to BrightScope.com.
Most investors probably need a lot more international exposure in their 401ks and retirement portfolios than they have right now.
Some top asset managers say the foreign exposure in equity portfolios should be closer to 30 percent. That's how much international stock exposure Vanguard and Fidelity — two of the leading 401k providers — have in their target date retirement funds, which change asset allocations between stocks and bonds as you get closer to retirement.
Most 401k plans offer an average of 3 international offerings and 10 or 11 domestic equity offerings. So the options are there, and you can also add to holdings outside of your 401k.
Portfolio manager Frank Troise says now may be the time allocate additional resources to sectors that will help fill a void in light of recent crises in the Middle East and Japan. He recommends investors focus on the "E-M-I" trade — Energy, Materials and Industrials.
"For retirees," he says, "simply following the 'EMI' trade may present them with an opportunity 3, 4 or 5 years out to engage in the fixed income markets."
Fixed income yields are still very low, yet returns on Troise's top picks for "E-M-I" exposure — exchange traded funds in energy, materials and industrials — are up 15 to 35 percent in the past 12 months.
Troise also likes emerging market ETFs that have broad exposure to European, Australian and Far Eastern stocks, as well as select emerging markets. He agrees with Vanguard and Fidelity —he says the goal should be to have at least a 30 percent weighting to foreign equities in your portfolio.