In 2007 mutual funds specializing in non-U.S. stocks returned a fat 16% while funds with diversified holdings in U.S. equities returned just over 6%. In fact the foreign-stock funds have beaten domestic-stock funds over periods of two three five 10 and 15 years. Moreover owning foreign stocks helps a U.S. investor diversify risk by reducing a portfolio’s volatility. Why then does the typical U.S. investor do little more than dabble in foreign stocks? Wharton finance professor Karen Lewis studies this issue in a paper titled ”Is the International Diversification Potential Diminishing for Foreign Equity inside the U.S.?”
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