Currently, my mix between domestic equity index funds and international equity index funds is 78% to 22%. I was surprised to find out recently that Vanguard uses a mix of about 63% to 37% in their total market funds. They are smarter than I am so that makes me think I should adjust. It seems like I have had a home bias (although it has worked out in recent years). What are the pros/cons of upping my international exposure to this level?
I use David Swensen asset allocation formula in my traditional asset class investing. That means 70% to equities with 15% of that in developed markets and 10% in emerging markets.
Phrased in terms of the percentage of equities in international that puts me at about 36%... and truthfully I actually have let the international component "drift" up from the Swensen formula's percentages.
To me, two big benefits. First, I feel like I've got a portfolio with less risk than if I was, say, 100% US stocks. Second, US valuations seem high to me and so US stocks seem unlikely to produce good returns over next couple of decades.
P.S. To save someone else the trouble of pointing this out, international or more international exposure hasn't worked in the recent past. All international stocks have done is drag down my portfolio's performance. I guess my thought on that, though, is not investing in international because the class has performed poorly recently is like buying more of whatever's recently performed well.