Final answer:
According to the text, many investment advisors recommend B) 10% of foreign stocks for a diversified portfolio. So, option B is correct.
Step-by-step explanation:
Many investment advisors recommend allocating around 10% of a diversified portfolio to foreign stocks. This percentage strikes a balance between reaping the potential benefits of international markets and managing the associated risks. Diversification is a key strategy in investment to spread risk and enhance the overall stability of a portfolio. By including foreign stocks, investors can gain exposure to different economic conditions, industries, and currencies, reducing the impact of any adverse events in a particular region.
The rationale behind the 10% recommendation lies in achieving a balance between risk and return. While foreign stocks can offer opportunities for growth and diversification, they also come with currency risks, geopolitical uncertainties, and market-specific challenges. Allocating a modest percentage, such as 10%, helps investors tap into global opportunities without overexposing their portfolios to potential downsides. This approach aligns with the principle of moderation, allowing investors to participate in international markets while maintaining a level of caution.
To calculate the recommended percentage, financial advisors often consider factors like historical performance, correlation with domestic markets, and global economic trends. By analyzing these variables, they determine an appropriate allocation that enhances the overall risk-return profile of the portfolio. In conclusion, a 10% allocation to foreign stocks is a well-considered recommendation that reflects a thoughtful approach to portfolio diversification in the context of the global investment landscape.