Barbara Friedberg, founder and principal of Barbara Friedberg Personal Finance in Santa Clara, Calif., doesn’t necessarily believe that investing only in the world’s hottest and growing markets will make for better opportunity and greater returns. Nor does she fancy putting her money in markets that could be potential hot spots but that others haven’t yet ventured into as yet, or even limiting herself to those countries in the world that are safer, more stable plays.
When it comes to getting the best out of international investing, Friedberg’s one major rule of thumb is to be as broadly diversified as possible over the entire globe, with a bit of exposure to many different countries and a range of asset classes.
“You’re much better off doing that than saying ‘Okay, so now Brazil is hot, let me put 50% of my international exposure there,’ or ‘China is doing great, so let me tilt my portfolio that way,’” Friedberg said. “My general focus with international investing is that you want to hit the entire world, and that means developing and developed markets, small cap and large cap stocks and even some international bonds.”
Friedberg dedicates about 20% of her clients’ portfolios to international investments, and she divides this between developed and emerging markets. ETFs are her vehicle of choice, both for developed as well as emerging markets (she likes Vanguard’s VWO emerging markets ETF, for example). She also likes investment vehicles such as the GWX small-cap ETF, because she believes that small-cap companies have a greater chance to grow quickly than larger ones.
“Generally, I put a larger percentage of my international allocation in more stable markets and I have a proportionately smaller percentage invested in emerging markets, small caps and in REITs,” Friedberg said.
Friedberg also said that crisis creates opportunity and that the systemic shocks and problems that cause most investors to retreat can also prove to be the most fruitful time for others if they invest.
Europe’s problems, for example, caused a major withdrawal from the region, “but Europe isn’t going anywhere, it’s going to come back at some point,” Friedberg said.
That’s why she has a more long-term investment horizon, one that encompasses a broad range of markets, some of which may be trending down at a particular time, but will eventually go up again.
“One of the best ways to minimize risk is to include assets with less correlation to each other, so as one moves up and the other moves down, the entire port is not tanking at same time,” Friedberg said. “Even though the correlation between the U.S. market and international markets is getting closer, we can still benefit from it.”
And the broader the international exposure, the better. Even if it’s in the form of a one-stop shop like Vanguard’s All-World ETF, “you’ll be hitting everything by putting your money in there and not worrying about it,” she said. “I believe in not jumping in and out of markets, but picking investments to stick with.”