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1.
Why do many target-date funds and indexes allocate a smaller percentage of assets to foreign stocks as investors near retirement?
Because of currency risk. Because foreign assets are not denominated in dollars, there's a chance that foreign currencies could dip as an investor approaches retirement, thereby depressing the purchasing power of a heavily globalized portfolio at an inopportune time.
2.
Currency risk is always bad for a portfolio that contains foreign stocks.
False. Currency risk is a two-way street. Sometimes it can work in your favor.
3.
How should you determine what your foreign allocation should be?
Set a strategic, long-term allocation to foreign stocks and stick with it, making only minor adjustments to rebalance.
4.
Who is a global market index fund best suited for?
Investors who want the market to decide regional and country weightings. These funds have made it easier for many to get into foreign markets.
5.
What type of risk leads many target-date funds to lower their allocation of foreign stocks as investors near retirement?
Currency risk. While the other risks mentioned may play a role, currency risk is the paramount one because foreign assets are not denominated in US dollars.
