Figure 5 – Five Cheapest and Five Most Expensive Countries, May 2014
Figure 6 – CAPE ratios of expensive, cheap, USA and all countries
- At a minimum, allocate your portfolio globally reflecting the global market-cap weightings. For a U.S.-based investor, that means allocating 50% of your portfolio abroad.
- To avoid market-cap-concentration risk, consider allocating along the weightings of global GDP. This would mean closer to 80% in foreign stocks.
- Ponder a value approach to your equity allocation. Consider overweighting the cheapest countries and avoiding the most expensive ones. Currently, this would mean a low or zero allocation to U.S. stocks. This does not mean simply picking one or two countries, but rather a basket of the cheapest countries – 10 is a reasonable number.