Should You Consider International Investments

Putting 10 percent to 25 percent of your investment dollars in overseas stocks has long been a good idea. Rarely, though, has the argument been stronger than it was late last year. In the third quarter, returns from international stock mutual funds outpaced those of domestic funds almost 3 to 1.

Recent months serve as a reminder that a well-rounded portfolio includes international investments. The simplest solution is to find a good, low-cost international index fund. The Vanguard Total International Stock Fund, for example, sports a slim expense ratio of 0.31 percent, yet it returned 10.8 percent in the first nine months of 2005--a time when domestic stock indexes were in the low single digits. Put 75 percent to 90 percent of your portfolio in a low-cost domestic index fund and the rest in an international one like Vanguard's, and you've built your investing house on stone rather than sand. You'd be hard-pressed to beat it by casting around for hot investments or all-star stock pickers, despite what some financial advisors will claim.