Should Retirees Own Foreign Stocks?
Retirees depend on their investments as a source of income, so it's not surprising that most are highly risk-averse. And because many perceive foreign stocks as being riskier than their U.S. counterparts, many retirees shun foreign stocks in their portfolios. But retirees should own foreign stocks, because by investing only in U.S. stocks, they actually take on more risk.
Over and over again, diversification has proven to be one of the most effective ways to reduce overall risk in any investment portfolio. The more you spread your purchases out over investments that react differently to different external events, the more likely you are to have a portfolio that will show some gains no matter what happens.
Picking up a few foreign stocks to supplement your domestic ones is a key part of any good diversification strategy. An event that drives down the U.S. stock market as a whole may have no effect on other markets, or may even cause them to boom. Thus, foreign stocks can protect you in ways that no domestic stock can.
Source: Fool.com
