February 1st, 2006

Adding Diversity to Your Equity Holdings with International Investments

This Issue: International Investing and Your Portfolio
By John Perkins, Financial Planner

Everyone knows the expression "don't put all your eggs in one basket." When it comes to your investments, putting all your eggs in one basket is having too few types of investments or asset classes.

Strive for Diversification

A well-diversified portfolio should include investments that cover many different asset classes. These may include bonds or other types of fixed income investments with different lengths of maturity and credit risk. Another distinction to look for is whether the bonds are issued by a corporate or government entity.

Equities (stocks) are categorized into asset classes that are defined by characteristics that include industry, company size, and region of the world.

Holding many types of investments helps to reduce the overall volatility (risk) of the portfolio. Some asset classes may perform better than others throughout the year and no single class will consistently outperform the others over time.

Consider International Investments and Markets
International equities constitute approximately 50% of the worldwide equities market, growing from 33% in the 1970s. In addition, international markets have outperformed the domestic market in two of the last three decades.

Despite this fact, international stocks represent only 5% of the average American investor's portfolio. While there will always be a bias towards holding investments from the part of the world where an investor lives, owning a greater percentage of international equities than the average American can be a good way to further diversify your portfolio. Because the international markets do not rise and fall in direct proportion to the domestic market, portfolios with a diverse international investment component should be less volatile, and produce a higher return over a long term holding period.

Diversification In Your Portfolio
There are many expert opinions about the optimal portfolio allocation of international equities. These views range from as little as 5% to more than 35%. I believe the best risk/return benefit lies between 10% and 25% of your equities. For example: In a generic $100,000 portfolio that holds 60% equities, 40% fixed income, and a 20% international stock allocation, the investor would hold about $12,000 in international equities.

Your individual portfolio is developed to meet your own objectives, time horizon, and risk tolerance and the percentage of international equities you hold should reflect your unique circumstances. I encourage you to consider international investments for your portfolio. For more information on international investments (low cost mutual funds, indexes, and ETF's) and how they fit into your financial plan, please contact us for an appointment. Call toll free at 888-320-9993

Special News: We have lengthened our reach and our ability to help you with your financial planning needs. John Perkins, Financial Planner, who has been with us since March 2005, is establishing a Compass Planning Associates office in Northampton, Mass. John will serve clients in the Pioneer Valley, Berkshires, and beyond, as well as continuing work from our Boston and Wellesley Hills offices. We would like to welcome our friends and clients from the Pioneer Valley and Berkshires.

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