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There’s a double-edged sword with international stocks, when it comes to putting together a long-term diversified portfolio.
On the one hand, it is absolutely essential to have exposure to the rest of the world. You can’t just sit in U.S. stocks, because diversification is essential in any portfolio. If the U.S. craters while other countries do OK, you’ll be sorry. Furthermore, international stocks have lagged in performance as the S&P 500 has roared, so it is time for them to catch up.
On the other hand, I personally have always been nervous about choosing individual foreign stocks. Things just work differently in other countries. I can’t assess consumer psychology in, say, Italy like I can here. Culture differences make accurate analysis difficult.
So that’s why I like to use broadly diversified ETFs to do the work for me. Moreover, I choose dividend ETFs, so that I can generate income and have a hedge against downside moves. Here are three choices to consider.
iShares International Select Dividend ETF (NYSE:IDV) provides exposure to 100 established, quality companies overseas. It sticks to developed markets to reduce risk and to help produce those dividends that go along with its name.
You won’t recognize most of the names here, save a few, but that’s the point. Let the pros choose the big-name safe stocks. It’s geographically diversified to Australia, the United Kingdom, Western Europe, Scandinavia, Canada, New Zealand, Hong Kong and Singapore.
The ETF has a very reasonable P/E ratio of only 13, and a 0.5% expense ratio, so it isn’t outrageously expensive to hold. Most of all, it has a terrific 6% dividend.
The WisdomTree Emerging Markets Equity Income Fund (NYSE: DEM) is similar, but focuses instead on emerging markets. Now this sector can be volatile and a bit scary, but holding emerging markets is essential because this is where a lot of future growth is going to come from. You have to own growth in other countries for proper diversification.
You won’t find many names you recognize here, either, but don’t let it freak you out. The fund is diversified both geographically and by sector, with 28% in financials, 19% in energy, 16% in telecom, 7% in utilities, 6% in IT, 4% in industrials and a smattering of consumer businesses.
China, Russia, Taiwan, and South Africa account for 62% of the funds holdings. It has a reasonable expense ratio of 0.63% and pays a 5.4% yield.
Finally, you really cannot be in the market without holding some kind of hard asset, and I prefer real estate. Property will always carry value, even if that value fluctuates from time to time. Having U.S. exposure with some of the terrific REITs out there is a nice start, but you should look internationally, to something like iShares International Developed Real Estate ETF (NYSE: IFGL).
Here you get exposure to real estate in Canada, Europe, and Asia, diversified across property sectors, including REITs. The ETF carries 188 different stocks, again in names you won’t have heard of, but have great geographical diversity. You get 23% in Japan, along with 16% in Hong Kong, 13% in Australia, 7% in Singapore and Canada, and the rest in western Europe.
The expense ratio comes in at 0.48%, with a dividend yield of 3.4%.
Dividends for Every Month of the Year
If you’re looking for just one dividend stock to round out your income stream, consider a little-known company that pays out dividends 12 months of the year. Click here to see the full details of this company in my Dividend Calendar…