Q: Our nest is now finally empty, and we are just starting to save for retirement. I know we should have started earlier but I was self-employed and it was feast or famine. Every time we got things going, we were just paying down debts incurred when things weren’t so good and the kids got more expensive as they got older. Anyway, I am having trouble figuring out how much of our deposits should go in foreign securities. Everything I read says we should have some, but U.S. stocks appear to be stronger. What do you think?
— Chuck
A.: Chuck, first congratulations on getting your savings started. Better to start now than later.
I’ll give you my opinion on how much to put overseas shortly, but I want to encourage you to avoid fretting about this issue. Please keep reading and learning about what to do with your savings but for anyone of any age that is truly starting from zero, the answers to questions like this don’t matter much, yet. As your nest egg grows, these issues have bigger impact. For now, a successful retirement does not hinge on your domestic vs. foreign allocation decision. It hinges on your ability to save.
You should focus on saving regularly and aggressively. It is easy to start spending all the new free cash flow once the kids are off the payroll. If you let that happen, you can easily find yourself in a similar cycle that prevented you from saving in the past.
Read: What retirement crisis? 401(k) and IRA millionaires hit a new high
As a business owner you have several tax-favored savings options available to you. You should talk with your adviser about those.
If you are taking a long-term diversified approach with your investments, owning foreign securities tends to add value over long periods. The easiest and cheapest way to invest in overseas markets is through mutual funds or exchange-traded funds (ETFs).
Holding foreign securities does not always add value and can significantly reduce returns. This is especially true over short periods of time, as has been the case of late.
Read: Big worries about the debtload of older Americans
Based on your empty nest status you probably have a decade or two until retirement. That’s a reasonable time frame to expect foreign holdings to help. Their underperformance compared with U.S. stocks will not continue forever. Timing the change is notoriously difficult.
A more reliable approach than trying to guess when foreign securities will be stronger is to always hold both domestic and foreign securities and not worry about which one leads in any short-term period.
How much to put overseas is debatable but most research suggests between 20% and 50% of stockholdings. Regardless of what percentage you choose, over a decade or more, it has almost always been good to hold some foreign securities on an ongoing basis. Just know the higher percentage that is overseas, the less your holdings will track the Dow DJIA, +0.26%, S&P 500 SPX, +0.03% or other familiar U.S. based indexes you read about, and at any point in time that difference can make you happy or unhappy that you own foreign shares.
If you have a question for Dan, please email him with “MarketWatch Q&A” on the subject line.
Dan Moisand’s comments are for informational purposes only and are not a substitute for personalized advice. Consult your adviser about what is best for you. Some questions are edited for brevity.