The Importance of Diversification in Your Investment Portfolio
One concept that has proven itself time and again is the importance of diversification. You should want companies in different industries, of different sizes, and in different geographical locations. With the U.S. being home to so many world-class companies, the latter can sometimes get overlooked.
Investing in International Stocks
A truly diversified portfolio should include international stocks, even if it’s only a small portion. That’s why the Schwab International Equity ETF (NYSEMKT: SCHF) can be a great buy-and-hold portfolio addition for those who want exposure to international companies.
About the Schwab International Equity ETF
The Schwab International Equity ETF is an exchange-traded fund that contains roughly 1,500 mid-cap and large-cap stocks from developed international markets. Developed markets are those with stable economies, mature financial markets, and (relatively) stable political environments.
Top Countries Represented in the ETF
- Japan: 21.28%
- United Kingdom: 12.26%
- Canada: 10.76%
- France: 8.50%
- Germany: 7.78%
- Switzerland: 7.56%
- Australia: 6.16%
- South Korea: 4.58%
- Netherlands: 3.83%
- Spain: 2.93%
The other roughly 15% of the ETF is spread among other countries that are less than 1% represented.
Performance and Benefits
When you invest in SCHF, you shouldn’t expect consistent market-beating returns compared to the S&P 500. It’s more of a hedge against the U.S. economy, protecting you when the U.S. economy is in a down period or when U.S. stocks become expensive.
Through Dec. 22, the Schwab International Equity ETF has far outperformed the S&P 500, up nearly 29% compared to 16%.
Again, this isn’t a gap that should be routinely expected, but it proves that having all your eggs in U.S. assets can sometimes cause you to miss out on better gains elsewhere in the world.
And even when SCHF underperforms the S&P 500, it can still serve as a good income source. Its current dividend yield is around 3.5%, which is above its 2.7% average over the past decade and nearly three times the S&P 500 average.
The icing on the cake is its low fees, with a 0.03% expense ratio. That’s one of the lowest that you’ll find from any ETF, which matters a lot when you’re planning to hold an ETF for the long haul.
Before investing, it’s important to consider all factors and do thorough research to make informed decisions.
