Stock Markets Exposed

For a 25 yr investment term would you invest more in the foreign stock market or US stock market and why?

I am filling out my 401K forms and would like to know what others have to say. PLEASE ONLY ANSWER IF YOU HAVE GOOD KNOWLEDGE ABOUT THIS TOPIC. INCOMPLETE ANSWERS SHOULD BE GIVEN "THUMBS DOWN"!

Public Comments

1. I would invest in the foreign markets because I believe that a lot of foreign markets have more potential for greater gains. Especially the Asian market. As China gains more ground in the business world (and it is rapidly) there is a huge potential for businesses to make money over there. I also fear that the U.S. market is over inflated and in 5 - 7 years I could see a major downturn in the stock market. The markets almost always self-correct, so a downturn in the US market is almost inevitable. To invest wisely, it doesn't hurt to invest in both markets. It is never a good idea to have all of your eggs in one basket.
2. Jim Cramer (of "Mad Money") recently had a show on "ROW" (Rest Of World) that suggests focusing on businesses that do a lot of their businesses outside of the US/Canada and "BRIC" (Brazil, Russia, India, China) because these ("BRIC") markets are starting to saturate. The problem in America is the Federal Reserve's unwillingness to budge when it comes to lowering interest rates.
3. This is a really good question that probably deserves a better answer than I am capable of giving. But here goes anyway. Much of the rest of the world is growing faster than the U S and it stands to reason that therefore investments in those areas with better growth will give better returns. This fact however has not been lost to investors and they have acted accordingly. India for example which is growing at about 2x faster than the U S has equities trading at about 35x earnings. That is about 2x times more than U S equites are trading for in relation to earnings. There is risk in purchasing securities at such lofty PE ratios. More risk than in purchasing equities at lower PE ratios. So there is a trade off. In my opinion one should have a diversified portfolio of investment to reduce risk. Diversity means investing some money in U S investments, some in European investments, some in developing countries favoring those developing countries that appear to have the best prospects and some even in Japan which has not done too well recently. One advantage of investing overseas is that your investments are not tied to the the U S dollar, which is a very weak currency. Past work has also suggested that having a portion of ones assets in debt instruments as opposed to equity instruments will tend to improve returns and lower risk. If you were to ask me what portion should be invested where, I would have to tell you I do not really know the answer to that. Standard and Poors suggests about 45% invested in the U S equities, 20% in foreign equities, 20% in bonds and 15% in t-bills. This is sort of a broad brush approach. Personally, I tend to favor t-bills as opposed to bonds currently and perhaps just a tad more in foreign equities maybe 30%. That gives a 1.5 to 1 ratio instead of more than a 2 to 1 ratio.
4. Vanguard, a well known mutual fund group suggests no more than 20% in foreign stock and 80% in U,S. stock investments. They argue that foreign investments tend to be more volatile than the U.S. Markets: https://flagship.vanguard.com/VGApp/hnw/planningeducation/education/PEdIESBCInvIntnlInvestsContent.jsp Fidelity, a second well known mutual fund group suggests up to 20% in foreign stock, in their Fidelity freedom funds. (Go to this link and click on fidelity freedom funds) http://personal.fidelity.com/planning/retirement/invest_overview.shtml.cvsr?refpr=rrc19 I personally would suggest 70% U.S. stocks and 30% foreign stocks, for the money you put in stock funds. (As you get older you need to start putting more and more into bond funds, however.) Everybody has slightly different theories on what percent to put in foreign stocks.