Owning some international bonds is a good idea

— -- Q: Is it a good idea to put at least part of my bond holdings into an international bond investment?

A: When many investors think about diversification, they usually have stocks in mind.

By now, most stock investors know they're best off owning a diversified basket of stocks. Whether or not they heed that advice, or instead succumb to the temptations of market timing or stock picking, well, that's another topic.

But you bring up a good point. Just as diversification can smooth out the ups and downs of your stock portfolio, it can also help with your bond investments.

This makes sense. Just as you might consider adding international stocks to your stock portfolio, the same logic applies to your bond portfolio. If things get tough in the U.S., and bond prices fall here, maybe conditions will be better overseas.

Now could be a decent time to consider the benefits of an internationally diversified bond portfolio. As the U.S. experiments with an unprecedented amount of borrowing to shore up the economy, some investors, including Warren Buffett, have warned of the possibility of a Treasury bubble. What better reason to add some debt issued by a diversified basket of countries?

The percentage of your bond portfolio that should be in overseas debt is a function of your taste for risk. But just as a point of discussion, Index Funds Advisors (www.ifa.com) offers a conservative portfolio that it calls Index Portfolio 20. And the asset allocation calls for 35% of the portfolio to be in international bonds and 35% in domestic bonds. The rest is in stocks.

Matt Krantz is a financial markets reporter at USA TODAY and author of Investing Online for Dummies. He answers a different reader question every weekday in his Ask Matt column at money.usatoday.com. To submit a question, e-mail Matt at mkrantz@usatoday.com. Click here to see previous Ask Matt columns.