The Lure Of Overseas Investing

Q: My wife and I have a diversified portfolio within our 401k programs at work, but the only investment working is the international portion of the portfolio. I am considering putting or all in this sector, and then selling when it looks like it will top out. We are both in our 30's, so we can withstand risk. What do you think?
— Jason and Heather S.

A: Following the herd mentality regarding investing Jason and Heather, can certainly lead to trouble, but I understand your desire. It's no wonder why investors love foreign mutual funds these days: They have outperformed domestic funds for the last three years by over 16% annually. This has led to investors pumping in over $157 billion in net inflows from the beginning of 2005 through May of this year. (I don't have June's figures at the time of this writing) That is over 47 percent of all stock and bond mutual fund inflows, all from a sector that accounts for just 16 percent of total stock and bond assets.

So, should investors join the herd towards foreign funds? While chasing success can always lead to disaster, as last years winners are often next years busts, trying to time the market and fighting the trend, also can bring misfortune. After all, trying to "time" the market has proven to be just about the hardest thing to do in the history of investing. As a general rule of thumb, a well diversified portfolio is a better choice, with perhaps 10 to 20 percent in international funds. Never...ever, put all your money in one investment. At the moment, domestic small cap stocks are doing well, but you will not see it until your next statement. As is always the case, start with a formal plan, an asset allocation and risk analysis specifically designed for your personal situation. Qualified independent investment advisors can help you with this, as well as financial planners (usually for a fee) and stock brokers (who are employees of the brokerage firm). From there you can decide the proper place for your money.

Keith Springer, President of Capital Financial Advisory Services is a Registered Investment Advisor and a Mortgage Broker here in Natomas, located on the river at 1383 Garden Hwy. You can contact him at 916-925-8900 or Keith@KeithSpringer.com