Any investor that understands the merits of asset allocation also understands the importance of including an international allocation in their portfolio. The concept is that in “normal” times there is always a market somewhere in the world rallying. To meet my set international allocation, I have focused on the following four areas of my overall portfolio:

I. International Fund in my 401(k)

This International Equity Index Fund seeks to match the performance of the MSCI EAFE Index which consists of approximately 1,200 stocks in 21 developed market countries outside of North and South America, and represents approximately 85% of the total market capitalization in those countries.  When compared to other options in my 401(k), I have been generally pleased with this funds performance over time. YTD Return:  (-7.2%)


II. International Exchange Traded Funds (ETF) Within My Asset Allocation Portfolio

The international component on my asset allocation portfolio is in iShares MSCI EAFE (EFA).  EFA seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of publicly traded securities in the European, Australasian and Far Eastern markets, as measured by the MSCI EAFE Index. This fund is tracking the same index as my 401(k) above, but with somewhat better results. YTD Return: (-5.1%)


III. Individual International Dividend Stocks

It was my desire to have international representation within my income investments, so I first looked to identify good non-U.S. dividend individual stocks that had an ADR trading on the New York Stock Exchange.  To identify these stocks I used the International Dividend Achievers™ list.  To become eligible for inclusion, a company must be incorporated outside of the United States. The companies must be have an American Depository Receipt or common stock trading on NYSE, NASDAQ or AMEX. Companies must have paid increasing regular annual dividends for five or more consecutive years. What I found is that most companies outside the U.S. follow a different dividend model.  Here are some of the differences:

• Many Foreign Companies Pay Dividends Based on a Percent of Earnings
  This produces a very erratic cash stream.