As the U.S. equities market begins to slow down, investors are looking overseas for potential opportunities. When constructing a more long-term asset allocation strategy, investors will have decide how much foreign equity exposure they want.
The U.S. makes up about half of the world economy, so investors would only need about a 50% position in U.S. stocks. For instance, the Vanguard Total World Stock ETF (NYSEArca: VT), which follows the FTSE Global All Cap Index. The $5 billion allocates nearly 53% of its weight to U.S. stocks with Japan, the U.K. and France combining for more than 18% of the ETF’s weight.
Diversification is the main reason investors should include international exposure. Kahler explains that for the same reason one wouldn’t hold just one stock in an investment portfolio, one should not focus entirely on the U.S. either.
Additionally, looking at other country market capitalization, developed markets, which include those in Europe, Australia Pacific and Japan, account for 40% of the total global market-cap. The remaining 10% account for the emerging markets, Southwest Asia and Latin America. [A Gauge for Foreign ETF Exposure]