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Portfolios 508: What's the Right Foreign Allocation?

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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?
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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.
What factor complicates the decision of how much your foreign allocation should be?
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Both of the above. Investing in foreign markets is not easy to pin down.
3.
What type of risk leads many target-date funds to lower their allocation of foreign stocks as investors near retirement?
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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 can global market index funds provide investors?
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Both of the above. Global market index funds have made foreign investing easier for many investors.
5.
Currency risk is always bad for a portfolio that contains foreign stocks.
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False. Currency risk is a two-way street. Sometimes it can work in your favor.