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Across My Desk: Retirement Portfolios and Diversification

Why not take a few minutes to look at how diversified your retirement portfolios are. Why? Because if they don't have some international representation in them you could be missing the boat.

According to reports from Ibbotson, a Chicago-based investment research company, a well-diversified portfolio needs some international holdings. Here's more from the news source reporting that story, Money Management Executive:

"Any North American investor should have a foreign equity exposure that is, at minimum, 25% and at a maximum around 50%," stated Michele Gambera, chief economist at Chicago-based Ibbotson Associates.

Additionally, a portfolio should be overweight in U.S. stocks if you're an American.

Investors all over the world, not just in Canada have a "home bias" and invest too much in their home market, Gambera told an audience at the Morningstar Investment Conference in Toronto this week.

"International diversification is a very handy thing," he said, adding that it boosts returns and reduces risk over the long term.

Gambera recognizes that there are valid reasons for investors to be biased toward their own country stocks. Foreign stocks usually carry higher transaction costs, and sometimes there are little advantages to buying a foreign stock that has a similar business to a domestic stock.

He acknowledged that his long-term diversification strategy could cost investors in the short term by failing to maximize their exposure to the hottest markets. However, Gambera said there is significant risk in trying to time geographic weightings in an attempt to cash in on out performers.

"The safer position is the diversified position," he said."

I'll second that.

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