Don’t Overlook the Value of International Stocks

Investors saving for retirement often avoid international stocks because of their perceived risk, but going global could actually reduce your portfolio risk. Why? International stocks may offer better value.

Over the six months ending April 30, the U.S. stock market, as measured by the S&P 500 Index, was up more than 8 percent and had surpassed its pre-recession highs. Overseas, the story is different. Some regions, such as Europe, have recently performed well, but others, such as Japan, have not.

As a result, the Wall Street Journal, using data from FactSet, reports that the U.S. stock market is now among the world’s most expensive. For example, U.S. stocks trade for 16 times their per-share earnings forecasted from May 2014 to May 2015; non-U.S. stocks, 13 times.

Diversify to benefit your portfolio

Another benefit of international investing is the potential it offers for diversification. When some markets are performing poorly, others may be performing well. If you invest in a number of markets, your chances may increase of achieving an overall return you’re comfortable with.

How much to invest in international stocks is a personal choice, but the conventional wisdom may be outdated: It used to be that investors were encouraged to invest 20 percent of their portfolios in international stocks – but this was in the days when the U.S. played a much more significant role in the global economy. Today, the U.S. represents roughly 20 percent of the global economy. It might make more sense to invest more of your portfolio abroad than in the past.

Risk exists

Keep in mind that international investing can add risk. Foreign markets may be less transparent, and if foreign currencies weaken against the U.S. dollar, the value of your investment could fall.

Your advisor can help you decide if adding international stocks to your portfolio is a good idea based on your individual financial circumstances and goals.

Get a Refund? You Could Be Overpaying Uncle Sam

Most people like the idea of getting a tax refund, seeing it as a form of forced savings or a windfall for a much-anticipated splurge. But a tax refund is actually a no-interest loan to the government. As a result, if you get a refund annually, it may be time to reconsider your withholdings and take action.

As of May 9, 2014, the IRS had received more than 136 million individual income-tax returns, according to the Wall Street Journal, and the average refund was $2,693, up 1.6 percent. Granted, an extra $2,693 in your pocket isn’t usually considered a bad thing, but certain taxpayers may want consider whether they should have that money earlier in the year.

For example, many people making estimated-tax payments – on self-employment earnings, interest, dividends, and rental income – are overpaying. Others simply have their paycheck withholdings set too high. If you fall into one of those categories, you may want to consider whether there are better ways to use the money you’re loaning to the government.

Could you pay off debt, for example? Could you bolster your savings account and let the earnings accrue interest? Could you invest in bonds or stocks that have the potential to appreciate? Could you contribute to an Individual Retirement Account or 401(k) plan?

It’s easy to file your return and forget about your taxes until next April 15, but now is the best time to review your tax situation. Your advisor can help you determine the appropriate amount to withhold.

Note: This article is not intended to give legal or tax advice.