Retirement & Financial Planning Report

Domestic equity funds have annualized returns of less than 7 percent for the past five years, through 2006. That’s far below the long-term average return for U.S. stocks, which is over 10 percent.

On the other hand, Morningstar reports that international stock funds have returned over 15 percent per year, for those five years. In 2006 alone, the average foreign stock fund returned more than 25 percent.

* Funds holding stocks from Asia and the Pacific (but excluding Japanese stocks) returned 45 percent in 2006, bringing their five-year annualized return to nearly 22 percent.

* Latin American stock funds gained 44 percent last year. Over the past five years, these funds have returned nearly 32 percent a years, tops among all fund categories reported by Morningstar.

* Diversified emerging markets funds, which usually hold stocks from Latin America and Asia, posted a 32 percent return in 2006, bringing the five-year average to almost 26 percent.

* European funds also posted 32 percent average returns in 2006. The five-year average moved up to nearly 18 percent.

As a result, virtually all foreign stock funds are much more expensive now than they were in 2002. If the U.S. dollar rebounds from current low levels, those funds could be vulnerable. It could be time to take a few dollars off the table by cutting back on your holdings.