Elle wrote:
- quote -

1) International and domestic stocks have similar long term returns.
Going forward, there is no reliable way to predict which national
markets will have a better return (on a risk-adjusted basis).
2) Domestic and international stocks are not perfectly correlated,
therefore you can get the same expected return with less volatility by
mixing domestic and international stocks.

If you want to improve on this allocation, the key is not to focus on
the foreign exposure of the domestic stocks. Rather you should is to
focus on the correlation coefficients to find groups of lower
correlated stocks.

"Tad Borek" <borekfm[at]pacbell.net> wrote
- quote -

I agree % of total revenues from non-U.S. sources is not necessarily an
indicator of, say, % of a particulary U.S. based stock position that may be
considered "international." Also, I agree the currency policies of a company
throw a wrench into the calculations.

I'm still inclined to do some crude guesstimates, especially given that
asset allocation is itself only a crude guesstimate.

- quote -

I don't know... I quoted the assumptions of two asset allocation tools
(Vanguard's and T. Rowe Price's) here yesterday. They both use S&P 500 data
(and so their corresponding returns) dating back to around 1960. As I
mentioned before, if the companies in the S&P 500 have steadily increased
their international business over the last few decades, and are continuing
to increase it, then I would be inclined to at least do a little more
checking and then actually guesstimate how much of the S&P 500 seems
"international" to me.

Just quickly going down the top 25 list of S&P companies, IIRC from
indivicual stock research GE, Citigroup, Bank of America, Coca-Cola, and
Altria have sales that are around 1/3 or more overseas. If say all S&P 500
companies do a 1/3 to 1/2 of their businesses overseas, I'd count my S&P
Index Fund position as something like 10% to 25% "international."

Again, just as a crude guess. Your and Elizabeth's points about
overanalyzing this are noted.

- quote -

I agree. I imagine currency risk is one of the bigger arguments for buying a
mix of companies doing business pretty strictly outside the U.S.

Elle wrote:
- quote -

You're right that many if not most large US companies have substantial
sales overseas. You might conclude that you don't need any more
"international" exposure than that. I can't think of a way to figure how
much exposure you're getting through the '500 though, and it strikes me
as being much too time consuming a task. It's constantly changing, and
you can't just look at revenues - eg the net effects will vary depending
on each firm's currency-hedging policies.

Presumably your asset allocation tool already reflects the implicit
international exposure of the S&P 500, then attempts to add to it. You
can second-guess the results but there are good diversification
arguments for additional international exposure on top of what you get
indirectly with US stocks.

If you take a generic portfolio that is 60/40 S&P 500/US bonds and then
reduce the US stock allocation and mix in some international stocks, you
should see a lowered standard deviation of returns and a higher total
return, especially if the international stocks you add are small and/or
value. That's the "free ride" of good diversification and it comes when
you invest in uncorrelated asset classes that each have expected
returns. At least that's been there in the past and there are arguments
for why it should be there going forward (currency effects, more-direct
connection to foreign economies and markets).

If you skip international then you miss out on that - or perhaps you
just don't think it's going to happen going forward, and you're right,
so you're not missing out on anything.

-Tad

"Elle" <elle_navorski[at]nospam.earthlink.net> wrote in message
news:0A6re.3602$jX6.3505[at]newsread2.news.pas.earthlink.net...
- quote -

I guess if you want to go to the trouble of figuring out how much of GE's
business is non-US, then figure out what percentage GE is of the S&P, then
you could factor that in. I'd rather spend my time doing something else. I
don't have near as much in international as most models suggest. I have
evaluated my risk tolerance for this sector and found it lacking. However, I
also don't have a "large part" of my portfolio in the S&P. I have opted for
a more diversified portfolio that has, in addition to domestic large-cap
growth, a healthy exposure to mid-cap stocks, large-cap value, and bonds.

Elizabeth Richardson

"Elizabeth Richardson" <erichktn[at]worldnet.att.net> wrote
- quote -

I am proposing that this may be a mistake.

But I don't know. Thus I am seeking commentary and insight. Surely there are
some serious DIYers and financial planners here who have thought about this.

A large part of my portfolio is in an S&P 500 index fund. None of it is in a
so-called "international stock fund." Almost all my other stock positions
are so-called "domestic" stocks. I am wondering if I really need to shift my
portfolio as much as some planners would advocate (on the assumption that
the S&P 500 is strictly non-international) to get the necessary exposure to
"international" markets that is so often advocated by diversity principles
and therefore allocation tools.

But if no one's thought about it, no big deal. I reckon I'll look over the
S&P 500 and my other stock positions and decide whether I have enough
exposure overseas, per allocation tools, and based on the little I have seen
suggesting that, yes, many U.S. based stocks with a large international
presence may be viewed as "international" investments.

"Elle" <elle_navorski[at]nospam.earthlink.net> wrote in message
news:jm1re.3202$hK3.2899[at]newsread3.news.pas.earthlink.net...
- quote -

Well, if you're not going to see that US multi-nationals are usually
classified as domestic holdings, aren't you already trying to write your own
model? I think few of us rely on somebody else's model, but,rather, assess
our own personal risk tolerance, and go from there.

Elizabeth Richardson

"Will Trice" <wwtrice[at]paragondynamics.com> wrote
- quote -

Yes.

- quote -


This has certainly occurred to me, but I do not know for sure. I think I
have seen some articles recently that said in lieu of buying international
stocks per se, one could buy U.S. companies with a strong overseas presence.

- quote -

Perhaps the difficulty is that U.S. stocks have become increasingly
international only recently? As a result, historical data from, say, the
1970s and earlier does not reflect the international influence. So for this
and other reasons, distinctions are not made?

- quote -

I'm using the several online tools I've mentioned here. (I do not believe
this is at all an exact science and so see no reason to write my own model,
based on assumed risks of different asset categories.)

I have summarized the tools at
http://home.earthlink.net/~elle_navorski/id4.html

Elle wrote:
- quote -

Presumably you're trying to match the international portion of a model
asset portfolio. Wouldn't the assumptions driving the model asset
allocation already take this into account? For example, let's say
you're trying to hit an efficient frontier for some risk level using
only three asset classes: U.S. Stocks, International Stocks, and U.S.
gov't bonds. When measuring the volatility of U.S. Stocks, companies
like GE would probably be in the U.S. Stocks benchmark and thus your
model allocations would reflect that. If you're using some
non-mathematical approach to choosing your asset allocation, then I
think the choice would be entirely yours.

-Will

Is it appropriate to count some portion of an S&P 500 index fund (such as
FSMKX) as part of one's "international" stock allocation? I ask this because
companies like GE are part of the S&P 500 yet they do a great deal of
international business. E.g. in 2004, GE's international revenues were 47%
of all its revenues.

If it is appropriate, can anyone state their recollection (or guesstimate
and reasoning) of about what fraction of FSMKX may be considered to be an
international stock position?