How much should I have in International investments?

The question of how much should I invest outside of The US is a good one. The short answer is 20%. Investing some of your portfolio in international funds adds diversification to your overall portfolio. It will help reduce risk and improve returns.

John Bogle, in his book "Common Sense on Mutual Funds" correctly points out that too much investing in international funds can be expensive - international fund fees are generally over 1%. They can be effected by currency fluctuations. In addition, if you have a good portion of your portfolio in large US companies (S&P 500) then you already have exposure to international economies. Bogle states that over 20% of S&P 500 profits are from outside the US.

Bogle recommends that you do not exceed 20%. I agree, I would also add that you may want to further diversify the international component by puttying 1/4th of your international funds in emerging markets - they add further diversification. They are riskier, so you will see greater ups and downs with the emerging markets. I do not advocate more than 7 or 8% of your total portfolio in emerging markets.