The Value of Investing in International Stocks

How much international equity exposure investors should have is an age-old question that is often debated. According to this article by Robert Stepleman, the data suggests that carefully investing in foreign stocks can be a good strategy over time as the non-US exposure can help improve long term returns. Over the last 24 years, U.S. and international stocks have outperformed each other about half the time and in roughly alternating periods.

Based on data from Morningstar, from 1970 to 2015, the S&P returned 10.4% annually, while a portfolio of 60% S&P and 40% Morgan Stanley International Europe, Australia, and Far East Index returned 11% annually with about 3% less volatility.  From 2000 to 2008, a portfolio broadly representing the U.S. stock market would have lost 0.4% annually, while a portfolio of 50% U.S. and 50% broad international stock would have gained 0.9% annually.

Based on data from investment firm GersteinFisher, over the period 1997 to 2012, an equity portfolio of 64% U.S. stocks, 23% developed-market stocks, and 13% emerging-market stocks outperformed a U.S.-only portfolio 100% of the time over rolling 10-year periods with an average outperformance of 2% annually. Over three year rolling periods, the mixed portfolio outperformed the U.S.-only portfolio 68% of the time.