10 Mistakes That Retirees Make and How to Avoid Them: Tip 4- Ignoring International Stocks

Wealth Advisor

Wealth Advisor

Mistake number four in retirement planning is ignoring international stocks. Some investors prefer sticking solely to US stocks for safety, but this can actually be riskier. All your investments become dependent on the US stock market’s performance.

Historical data shows that international stocks can outperform when US returns are lower, offering diversification benefits. During the distribution phase of your retirement plan, a diversified portfolio that includes international stocks is crucial. It provides flexibility to draw from areas performing well, reducing risk from concentrating investments solely in the US market.

Video Transcript

Mistake number four is ignoring international stocks. Oftentimes we hear from conservative or risk adverse investors that they want to avoid international exposure and only want to invest in US stocks.

Although this may sound safe and feel safe, it’s actually the opposite. The reason for that is all of your eggs are in one basket, which is the US stock market. So what this chart is showing is the relationship between international and US stocks.

As you can see, as US stocks go up, international stocks generally go down. And if we look at all the different years here, it’s about a 50 50 split. Most importantly, what we want to look at is here on the next page is what’s international doing when the US is performing well, and what is the US doing when international stocks are performing well?

So, as you can see, when US returns were less than 4%, international stock markets outperformed 45 out of the 45 years between 1970 to 2020, when US returns were less than 6%, international outperformed 94% of the time.

And over all return periods, US outperformed 54% of the time, whereas international outperformed 46%. So the reason we mentioned this and why it’s important for you to know as a retiree is during the distribution phase of your plan, it’s extremely important to always have a position that we can pull from at a gain.

So if we have all of our investments just in the US stock market and the market goes down, we need to have an assortment of where we can pick and choose from if we’re looking to distribute funds.

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Playlist

10 Mistakes That Retirees Make and How to Avoid Them

10 Mistakes That Retirees Make and How to Avoid Them: Tip 1-Underspending
10 Mistakes That Retirees Make and How to Avoid Them: Tip 2- Failing to Diversify
10 Mistakes That Retirees Make and How to Avoid Them: Tip 3- Being Too Conservative
10 Mistakes That Retirees Make and How to Avoid Them: Tip 5-Not Addressing Inflation
10 Mistakes That Retirees Make and How to Avoid Them: Tip 6- Mismanaging Withdrawals
10 Mistakes That Retirees Make and How to Avoid Them: Tip 7- Annuities
10 Mistakes That Retirees Make and How to Avoid Them: Tip 8- Timing the Market
10 Mistakes That Retirees Make and How to Avoid Them: Tip 9- Paying Too Much in Fees
10 Mistakes That Retirees Make and How to Avoid Them: Tip 10 - Relying on "Common Knowledge"

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