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Vanguard's John Bogle on including International Stocks in Your Portfolio

Mark Zaifman   |    Thu, Feb 05, 2015 @ 12:07 PM


Should you include international stocks in your investment portfolio? If yes, how much? If no, why not?

John Bogle spoke to this question when he was recently interviewed on CNBC. Thanks to my client Jim T. on the east coast for sending me the link to the video and suggesting I post to my blog.

Be wary of stocks outside the US: Bogle

Sharing his overall market view during the interview, Bogle recommended not to exceed 20% in non-U.S. securities if you must invest internationally. Interesting that he uses the phrase if you must. Obviously, he’s not a big fan of going abroad when investing.

Here at Spiritus, we use Ibbotson asset allocation models when constructing investment portfolios for our investment management clients With Ibbotson long considered the ‘gold-standard’ of asset allocation models, of course it made me curious to see how our portfolios compared to Bogle’s recommended 20% max international securities exposure.

For our 60/40 model, the most widely used at our firm (60% allocation to equities-40% allocation to bonds) we have a 17% allocation to international securities. So we’re within Bogle’s international comfort zone, aka- the Bogle sweet spot.

That said, our most aggressive Ibbotson model, which has a 95% allocation to equities and 5% allocation to bonds does exceed a 20% allocation to international securities. So definitely some food for thought here….

Key Takeaways per John Bogle

“Stick with U.S. securities. You don’t need to do international investing because the U.S. is an international economy. Because you earn your money in dollars - you save your money in dollars, you invest your money in dollars - you retire and receive your social security or pension in dollars, avoid the currency risk when you invest internationally.”

It is worth mentioning that many international funds do provide hedges against currency risk, but for most investors, that’s too confusing to sort out and often hard to figure out the mechanics behind the hedging strategy. So point taken, Mr. Bogle.

Next time you receive your investment statement, check out the total amount of your money that’s invested in international securities. See how that stacks up to Bogle’s recommended 20% max allocation to this asset class.

Are you over, under or sitting pretty in the Bogle sweet spot?