Quote:
Originally Posted by noppenbd
Schwab gives it suggested asset allocation for the most aggressive, risk-tolerant, long-term investor as 50% large cap, 20% small cap, and 25% international equity, with 5% cash or equivalent.
You could increase your international exposure by maybe 5-10% at the expense of cash and maybe some large caps but I think it is dangerous to think that you will be safer overall in international than US stocks. If you notice, every time the Dow drops most of the world follows. Any economic crunch that comes will likely not be confined to the US.
Besides, you are investing for the long term, right? So you don't care what happens in the next few years with the credit crunch, subprime, etc.
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International investing also helps hedge against the dollar, because most of the time the dollars invested must be converted to a foreign currency, and the currency can rise relative to the dollar to boost returns without the underlying security even changing in value. See last 3 years+ for reference.
If only 3 equity asset classes are being used (large cap and small cap domestic, large cap foreign) then I think it is too much risk without enough diversification.
If looking at US stocks, you could look at S&P 500 and Wilshire 5000 indexes. You can read that 75% of the Wilshire 5000 performance comes from the S&P 500. So you need allocations to equity classes which do not correllate. This is why I suggest small cap, mid cap and large cap for domestic holdings, plus small cap, large cap and emerging markets needed for foreign holdings. Maybe even slice a pure value fund and a pure growth fund too.
Then allocate between the classes and buy the ones which are lagging. Each class has a period of outperformance, buying low and rebalancing high is important to make money and keep risk in line with expectations.