How to diversify the foreign stocks in your portfolio

Paul J. Lim in the New York Times warns that although diversifying your portfolio can reduce your exposure to risk, there are short term dangers which must not be ignored. Here is a summary of the strategies Paul Lim provides for including foreign stocks in your portfolio based on discussions he had with financial experts:

•   Practice dollar cost averaging. This involves spreading your purchase of stocks over a number of months or quarters. Doing this will safeguard you from the dangers of investing all your money when the foreign stock prices are at their peak and you could benefit handsomely if the prices start to fall.
• Look for short-term pull backs. Even though the trend is upward in terms of prices, there are times even in the very short-term when prices will dip. Buy foreign stocks when this happens.
• If you are investing in foreign stocks for the long-term ensure that you periodically cash in on some of your profits.
• However, cashing on some of your profits from time to time will mean that you will have to also periodically rebalance your portfolio. This means that have you have to ensure that the proportion of foreign stocks to domestic stocks remains the same. It also means that that you have to ensure that the proportions of the different varieties of foreign stocks remains the same. For example, you have to ensure that the proportion of blue chip and emerging market foreign stocks should remain the same. If you cash in buy selling some of your blue chip stocks then the proportion of emerging market stocks in your portfolio will rise. So, you might have to buy some others to redress the imbalance.
• Invest in funds that are well-diversified. This can also reduce your risk exposure.