APRIL 11, 2025
In today’s increasingly globalized investment landscape, American investors approaching retirement face complex decisions about geographic diversification. One such investor recently reached out to our financial advice column with a pressing concern: “I’m five years from retiring and moved a significant portion of my portfolio into non-U.S. stocks. Was that a big mistake?”
This question reflects growing uncertainty among pre-retirees about optimal investment strategies as they near their retirement horizon. Financial advisors have expressed mixed opinions on the matter, highlighting both potential risks and benefits of international exposure so close to retirement.
“The timing of this decision raises some valid concerns,” says Maria Gonzalez, a certified financial planner with 25 years of experience advising pre-retirees. “With only five years until retirement, portfolio volatility becomes a more significant risk factor, and international markets can sometimes experience greater fluctuations than U.S. markets.”
The recent performance disparity between U.S. and international markets has only complicated matters. While the S&P 500 has delivered strong returns over the past decade, many foreign markets have lagged behind, leading some investors to question the wisdom of international diversification.
However, other financial experts caution against viewing this allocation change as inherently problematic. “Geographic diversification remains an important principle of sound investing,” explains Dr. James Chen, professor of finance at Columbia Business School. “The real question isn’t whether international exposure is appropriate, but rather the percentage allocation and whether it aligns with this person’s specific retirement goals and risk tolerance.”
Several factors warrant consideration for anyone in a similar situation:
First, currency fluctuations can significantly impact returns from international investments, potentially adding another layer of volatility to a pre-retirement portfolio.
Second, different regions face varying economic challenges and growth prospects. Emerging markets may offer higher growth potential but with correspondingly higher risk, while developed international markets might provide more stability.
Third, the investor’s overall retirement readiness matters tremendously. Someone with substantial savings relative to their retirement needs might reasonably accept more investment risk than someone just meeting their baseline goals.
“The most important question isn’t whether international stocks are good or bad, but whether this allocation supports this person’s comprehensive retirement plan,” says retirement specialist Thomas Wilson. “Without knowing their full financial picture—including other income sources, expected expenses, and overall asset allocation—it’s impossible to determine if this was truly a mistake.”
Financial advisors generally recommend that investors within five years of retirement maintain a more conservative allocation, typically with increased fixed-income exposure and decreased equity risk. However, this doesn’t necessarily preclude international investments, which can provide important diversification benefits.
“Rather than abandoning international exposure entirely, a more balanced approach might involve gradually reducing allocation to higher-risk assets while maintaining some international diversification,” suggests Gonzalez. “The key is ensuring your portfolio aligns with your time horizon, risk tolerance, and specific retirement objectives.”
Experts universally recommend that pre-retirees consult with qualified financial advisors before making significant portfolio changes, particularly when retirement is on the near horizon.
