401k Moves to Make this Spring

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401k Moves to Make this Spring

Increase International Exposure

I’ll start with an uncomfortable truth: U.S. stocks, as a whole, are overvalued and priced to deliver sub-par returns going forward.  The S&P 500 trades for nearly 19 times earnings. To put that in perspective, the average over its history has been 15.5, meaning that U.S. stocks are over 20% more expensive than average.

The cyclically-adjusted P/E ratio, or “CAPE,” which uses a 10-year rolling average of earnings to smooth out the fluctuations of the economic cycle, also points to an expensive market. Currently at 25.6, the CAPE has only been this expensive a handful of times in history.

Yet overseas, we see a very different picture. CAPE ratios in much of Europe and in emerging markets are at or below their long-term averages.

Most 401k plans have at least a couple options for “international” or “global” funds.  Consider upping your allocation to non-U.S. stocks to 50% or more of the portion of your portfolio allocated to stocks.


Article printed from InvestorPlace Media, http://investorplace.com/2014/05/401k-moves-make-spring/.

©2014 InvestorPlace Media, LLC

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