Despite the underperformance of international investments over the past decade, I still think it makes sense owning foreign stocks for a long-term investment portfolio, notes growth and dividend expert Chuck Carlson, editor of DRIP Investor.
I like the dividend yield advantage of foreign stocks. And having value stocks in a portfolio makes sense as a diversifier and an offset to portfolios that have become heavily tilted toward high-growth but very-pricey stocks.
How much international exposure makes sense for investors? In a long term investment program, 10%-15% international exposure, with the bulk in developed countries and a smaller position in emerging markets, is a reasonable target level for a portfolio that is 100% invested in stocks. If you are running a balanced portfolio (50%-60% in stocks), you can cut that 10%-15% exposure in half.
The most common way to invest overseas is via global mutual funds and exchange-traded funds. With one investment you can diversify your funds across many stocks and countries.
Vanguard offers two broadly diversified international funds, the Vanguard International Growth (VWIGX) mutual fund and the Vanguard FTSE Developed Markets (VEA), an exchange-traded fund.
For coverage of small and mid cap international stocks, consider the iShares MSCI EAFE Small-Cap (SCZ). And for emerging markets, the Vanguard FTSE Emerging Markets Index (VWO) exchange-traded fund offers a low-cost option.
While using mutual funds and ETFs is certainly the easiest and simplest approach, I prefer a “hybrid” strategy, which considers funds and ETFs along with individual foreign stocks.
Among foreign stocks with ADRs, two are especially worth highlighting. Novo Nordisk (NVO), based in Denmark, is a global leader in the treatment of diabetes.
According to the International Diabetes Foundation, roughly 463 million adults (20-79 years) were living with diabetes; by 2045, the number is expected to rise to 700 million.
Novo Nordisk stock has been a solid performer over the last 12 months, rising 31% versus a 10% gain in the S&P 500.The stock, yielding 1.5%, is one of my favorite plays in the health-care space.
Novo Nordisk’s direct-purchase plan has a minimum initial investment of $250. Initial purchase fee is $15. Subsequent investments are a minimum $25.
SAP (SAP) is a German-based technology company. Per-share profits and revenue should show nice growth this year and next. The stock has done well of late in line with the tech sector.
These shares provide a nice way to play the tech space while gaining exposure to international equities. Minimum initial purchase in the SAP direct-purchase plan is $200.
The firm will waive the minimum if an investor agrees to automatic monthly investment via electronic debit of a bank account of at least $50.
