American investors and their advisors have long known that the economy is increasingly a global one. That means most mainstream investors are advised to own at least some overseas assets (funds, ETFs, stocks) in their portfolios, in addition to holdings in American businesses or primarily North American-focused multi-national companies.

International stocks and funds are important in contributing to a portfolio’s diversity, distributing risk among a variety of asset types, and taking advantage of the fact that foreign economies (especially emerging ones) show different growth patterns. The industries and businesses they represent may participate in different economic cycles, moving up when North American markets are moving down, or responding differently to global economic shifts. That said, international holdings may carry higher costs, face abrupt shifts in value, and carry a few other risks.

If you’re planning to review your portfolio with a financial advisor, here are a few considerations that may come up in conversation around international holdings.

Where are you relative to retirement?

Because global markets swing and shift at both a single-country and regional level, they can present different risks to an investor’s portfolio than domestic stocks. Most advisors will assess how soon an investor plans to retire in deciding how much and what type of international exposure their client needs.

Brian Fricke, a CERTIFIED FINANCIAL PLANNER™ with Financial Management Concepts in Winter Springs, Florida, says he would generally go along with the conventional wisdom that a younger investor or Millennial is wise to hold up to 20% of their assets in international equities (with 15% in established economies – think the UK or Germany – and 5% in emerging markets – think India or China). Mid-career investors might want a 10% to 15% allocation, mostly in established-market funds or exchange-traded funds (ETFs).

But since Fricke’s clients are all either retired, or within 5 years of entering retirement, he says, his firm has advised them to stay away from international holdings for now. His firm uses a so-called “tactical” approach to portfolio advising. That means it categorizes how advisable (i.e., attractive) different asset classes are based on the ratio of demand for the asset class vs. its relative strength in the market. And with risks in the international assets arena, the asset class hasn’t made much sense for his firm’s client demographic. Most near-retirees or newly-retired investors want to avoid what’s known as “sequence risk”—taking a hit to their portfolio early on in retirement—so asset classes with fluctuating cycles may be ill-advised.

“We have been discussing adding back international exposure,” Fricke says. “If it appears international continues to see stronger demand, we’ll look at advising clients to add it back.”

How much international exposure is already embedded in your portfolio?

“Over the last year, everyone’s been asking about international constantly,” says John Flavin, a CERTIFIED FINANCIAL PLANNER™ with Synergy Financial in Seattle. “International has been hammered, but for some investors it’s time to introduce it or increase it, before it’s recovered.”

Mr. Flavin, however, notes that many broadly constructed mutual funds (large-cap funds or target date funds, for instance) do already include an allocation to international. Target date funds for younger investors, especially, would likely contain a healthy dose of international holdings.

However, depending on a fund’s investment mandate—some have a specific maximum allocation to international, while others might shift allocation up and down—an investor might not be aware of how much they’re already holding.

Investors whose portfolios contain industry-specific funds may wind up with international funds that don’t describe themselves as such. For instance, many natural resources funds include heavy allocations to foreign holdings—often as much as one-third or more of the fund contains non-U.S. assets.

Where do you want to invest?

“International” is a broad category, so you need to think about where and what you want to invest in. Investors can invest in regional assets (Latin America, for instance) or single-country assets in mutual fund or ETF form. Additionally, investors can choose from established or emerging economies, or regions that include emerging and established economies.

Fricke recommends that when investing internationally, investors stick to broader regions rather than choosing single-country assets. He likens emerging market ETFs to stocks in small-cap or higher-risk startup companies, in the sense that they share a higher degree of risk than do more broadly regional international funds or established companies.

Flavin notes that the term “emerging” confuses some investors.

“When people hear the ‘word’ emerging, it implies that investors are dealing with an itty-bitty country or economy,” Flavin notes. “But that’s generally not true. You’re not investing in a goat farm in Poland.”

China, he notes, is considered an emerging market by some international funds but not others. While the economy and country are gigantic, some aspects of its business culture and government remain opaque to outsiders, suggesting it is still “emerging” as an economic player on the world stage.

The company MSCI tracks international market behavior in multiple index products—including one that tracks non-U.S. emerging markets, European markets, the U.S. market, and emerging markets—and lists which markets are seen as emerging versus established.

Armed with the answers to these questions, you and your advisor can decide how to add or subtract from your international holdings. With the American equities market shrinking in contrast to the global market investors and their advisors are wise to keep an eye on how to participate in overseas economies.

Jane Hodges

Jane Hodges

Jane Hodges is the author of Rent Vs. Own (Chronicle Books) and has written about real estate and personal finance for The Wall Street Journal, New York Times, Seattle Times, Fortune and many other publications. Follow Jane on Twitter and Google+