It's a trend we've seen again and again: Investors' enthusiasm for an asset class seems to ebb and flow with the performance of that market segment.
Foreign stocks are no exception. For example, though there are sound fundamental reasons for investing in emerging markets, it's probably not a coincidence that investors send scads of new money to diversified emerging-markets stock funds when they are outperforming.
But rather than adding to and subtracting from your foreign stake based on market performance, and risk being whipped around by market winds, a better approach is to set a strategic, long-term allocation to foreign stocks and stick with it, making only minor adjustments to rebalance.
Unfortunately, that's easier said than done. Even informed observers vary widely on how much to stake overseas, ranging from the "don't bother" camp to the "all global, all the time" school of thought.
And importantly, classifying foreign and U.S. companies based on where their headquarters are located is evolving into an increasingly questionable exercise, especially for large-cap multinationals. Companies such as Coca Cola and McDonald’s derive more than half of their revenues from overseas, whereas global behemoths such Nestle and Toyota count on the U.S. for a big portion of their sales.
The Global Portfolio: A Starting Point >>