The New 60/40 Portfolio: Domestic/International

Rob Schmansky of Clear Financial Advisors, LLC, is a big believer in international diversification in client portfolios—so much so that the typical split he uses is 60/40–60 U.S. and 40 international.

“When you look at a breakdown of investable financial markets [and] the global economy,” said Schmansky, “what you see is that the U.S. isn’t the largest majority anymore.” He said that the more investable assets included in a portfolio in ways that make sense—which includes looking outside the U.S. for opportunities—“the smoother the ride is going to be.”

Schmansky, who has been relying on injections of international exposure throughout his career—but more so now that he’s at the helm of his own firm—points out that “funds always have some sort of international exposure. For myself, I’ve ratcheted it up a little bit.” One area where he’s had success is in real estate, playing off international holdings against domestic in a way that “worked out very nicely,” particularly during the last couple of years.

He pointed to Vanguard’s domestic REIT fund and its global ex-U.S. real estate fund as examples that have demonstrated the value of holding international assets. “If you compare [the two] by side, their performance over the last five years or so, one [year one is] performing strongly over the other, but in the next year that reverses itself. By holding both assets, you engage in a discipline. You capitalize on selling at the top of the domestic market while purchasing international [when it’s low.]”

Making the case for diversification, Schmansky takes a historic view. “The U.S. won’t necessarily be the best [investment] over the next hundred years. If you look back over history and see tension in the financial centers of the world, where the world does business, what its reserve currencies have been, how many have we had over the last 500 years?” Diversification looks toward the future—a future that might not necessarily see the U.S. on top.