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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.
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.
3.
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.
4.
What factor complicates the decision of how much your foreign allocation should be?
Both of the above. Investing in foreign markets is not easy to pin down.
5.
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.
