The best risk management available, in terms of risk/return, is bonds. I keep 20% of my portfolio in bonds. Although the stock market often commands more media attention, the bond market is actually much bigger and is vital to the ongoing operation of the public and private sector:
Don't fall into the trap of convincing yourself to hold less international stocks, because VTSAX companies also sell products internationally. Those same international stocks also sell products to the US, but does anyone ever make the argument that you aren't truly exposed to the US if you don't own international? These are all just rationalizations for a home-bias, to keep all your money in the US.
The dozen large companies in NY state are closely linked to both the international economy, and the US economy. Why shouldn't I just buy them? GE often follows movements in the S&P 500, why not just own one stock?
If Samsung beats Apple in the multi-billion smartphone business, how much will it help me that Apple also sells phones in South Korea? Why would I want to own Chevy and Ford and skip Honda and Toyota, or BMW and Mercedes, if you could own them all at low cost?
Consider that in international markets you will find...
- 7 of the 10 largest automobile companies
- 7 of the 10 largest diversified telecommunications companies
- 8 of the 10 largest metals and mining companies
- 6 of the 10 largest electronic equipment and instruments companies
- 5 of the 10 largest household durables companies
It's nonsense to say that a companies participation in a market, is an excuse to not own all stocks in that market. I tried to find some correlation between companies with a strong foreign presence, and the performance of the international/domestic market, but was unconvinced. Looking at Fidelity's Export and Multinational Fund - FEXPX, which invests "primarily in securities of U.S. companies that are expected to benefit from exporting or selling their goods or services outside of the United States."
Let's look at the first three phases:
1. International greatly underperformed the US, so we would expect the export fund to be pulled down, yet it outgrows domestic.
2. International drop just about matches the US drop (might have dropped a bit further), yet the export fund is almost flat, not pulled downward.
3. International greatly outperforms the US, but the export fund is in-line with the US.
In short, you shouldn't make investment decisions, based on expectations like "US company share price with a strong foreign presence will be pulled by economic performance in those countries in the long run." unless you have data showing this effect (if it exists) is strong enough to make an impact on your portfolio. Do you have this data?
Indexing makes sense globally as much as it makes sense domestically. Here's an example of what can go wrong during retirement, when you're 80/20 US stocks/US bonds, vs 40/40/20 US Stocks/International Stocks/US Bonds (global market cap portfolio):
In this catastrophe scenario, the USA only portfolio would have dropped to 0, while the 3 fund portfolio would have grown to $920,365 an overall gain of over 30%. Also, the obligatory 25 year Japan chart:
TL;DR - The best way to manage your risk is by starting with a cap-weighted world stock portfolio, and adding bonds.