investing

International stocks = investing success

Should investors limit their international investments to equities and bonds, or should they include currencies and international real estate?

Professor's Perspective
Professor's Perspective

Based on the target-date funds recommended by mutual fund families, prudent portfolios must have international stocks. International real estate also makes a lot of sense and is an often-overlooked asset class. T. Rowe Price recommends an exposure to international bonds, but Vanguard and Fidelity do not, and no one recommends currencies. Also worth noting: No one recommends hedge funds or commodities.

The traditional argument, when government debt was default-risk free, is: If you buy, for example, Japanese bonds and hedge the currency risk, then you are right back to owning U.S. Treasury bonds. I believe this explains the few recommendations for international bonds or currency bets. Since default risk exists on some governments' debt, the case for international bond diversification may be increasing.

William Reichenstein
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William Reichenstein, CFA, Ph.D.

Pat and Thomas R. Powers Chair in Investment Management
Baylor University

 

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