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Ask UIMG: Domestic & International Equities

Thomas R. Sullivan, CFA,

July 01, 2013

Growing Your Wealth


With the stock portion of my 401(k) investments, what percentage do you suggest be invested in domestic equities and what percentage in international equities?

Exposure to international equities in your 401(k) will increase diversification and long-term growth potential of your portfolio, but may also subject you to some additional risks including currency fluctuations and geopolitical uncertainty. The specific allocation to international equities should be based on the return prospects for the asset class and constrained by an individual’s risk tolerance. The “appropriate” allocation to international equities continues to be heavily debated in financial literature. Nevertheless, within UIMG we consider a 20% investment in international equities to be a “neutral” allocation. It is important for investors to understand that internal investing exhibits a broad array of return and risk profiles. Many developed market countries have a risk/return profile similar to the U.S. On the other hand, emerging market countries typically have a much higher risk/return scenario. As such, we recommend that any international exposure be broadly diversified across many different countries and geographies. Fortunately, most 401(k)s offer broad-based international options.

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