Foreign Stock Allocation

Q: Since the French and Dutch rejected the EU Constitution, the Euro has fallen. Should we reduce our foreign holdings?

A: Generally speaking, foreign funds do gain a slight benefit when the dollar is falling. So on the surface, it might seem reasonable to reduce foreign exposure when the dollar is strengthening, as it has in recent weeks. However, remember that just a few short months ago the conventional wisdom was that the dollar was sure to fall further this year against the Euro and other currencies. We view these short-term currency expectations with the same skeptical eye that we turn on most of the market's "news." The SMI investing strategies have proven themselves effective without playing the short-term trading game in the past, so we encourage you to focus on your long-term investing plan and tune out the news of the day that constantly tries to get you to "do something." In most cases, reacting to recent market events will hurt—not help—your investing returns. For a long-term reason to consider boosting your foreign allocation, rather than reducing it, see International Investing Made Easy.

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