Clients have asked many times over the past few years why we (at my wealth management firm PDS Planning, Inc.) invest so much of their equity portfolio in stock index funds that are not US-based, i.e. International Stock Index Funds. To give this some perspective, most of our clients have US and International stock weightings of 60% and 40%, respectively. We’re often challenged that the International weighting is too high, especially given the recent outperformance by their US stock counterparts.
There are several reasons why we do this:
- We believe in the continuation of the trends represented in the picture above; and
- Diversification is one of the best tools for mitigating risk; and
- We want a portfolio that is a representation of global economics.
This next image from HowMuch.net, a financial literacy website offers one of the best visual depictions of wealth from around the world. Of note, the US only accounts for about 30% of the global wealth.
A great reminder that the world’s wealth is diversified, and our portfolios should be as well.