MY STANDARD ADVICE has always been to keep roughly two-thirds of a stock portfolio in U.S. shares and a third in foreign stocks. As I see it, we invest now so we can spend later. Come retirement, most of us will spend our savings on U.S. goods and services, so it makes sense to have the bulk of our assets in dollar-denominated investments.
But I’m having second thoughts. U.S. and foreign stocks each account for roughly half of global stock-market capitalization, and I’m toying with whether a stock portfolio should mirror those weightings.
What about matching our assets with our liabilities, which means investing mostly in U.S. investments because we’ll eventually be buying mostly U.S. goods and services? Think about how our portfolios change as we approach retirement. Over the 20 years before we quit the workforce, we might move from 80% stocks to more like 50% or 60%, with the balance going into bonds—typically U.S. bonds.
Factor in those U.S. bonds, and suddenly our assets are closely aligned with our liabilities, even if half of our stock portfolio is in foreign stocks. Let’s say we’re 50% stocks and 50% bonds, with the stocks divided equal between U.S. and foreign shares but the bonds invested entirely in U.S. securities. Overall, our portfolio would be 75% in dollar-denominated investments, which seems about right, given that the bulk of our retirement money will be spent on U.S. goods and services.