I'm something of a do-as-I-say-not-as-I-do financial advice giver. I've extolled the virtues of having a concentrated portfolio, yet I'm sitting here with a portfolio that could really use some thinning. I know it can be good to have some exposure to bonds, but I've yet to invest in any.

I wasn't surprised, then, to learn that the American Economic Association (AEA) had invested its portfolio of nearly $18 million in ways that leave something to be desired. For example, it's smart to include a swath of foreign investments like Petroleo Brasileiro (NYSE:PBR) and Nokia (NYSE:NOK) in your portfolio, for diversification's sake. Many nations' economies are growing much more briskly than our own, and some are even exploding. Yet at least as of early 2007, the AEA had no emerging-market stock holdings, and just 10% of its assets in Europe and the Pacific.

It also had 35% of its assets in bonds, perhaps because its members were unaware of the findings of business professor Jeremy Siegel. He noted that stocks have outperformed bonds 82% of the time over all 10-year periods between 1871 and 2001. Meanwhile, stocks outperform bonds 95% of the time over all 20-year periods, and 99% of the time over all 30-year periods!

Happily, the AEA seems to have changed its ways recently. It set up a committee to study its allocation, which led (after many heated debates) to a reallocation. Bond exposure has been trimmed to 15%, and foreign investments are up to 30%, including 5% in emerging markets. In true Foolish fashion, the portfolio has retained its 45% in an S&P 500 index fund, which we've long recommended for most investors.

It also kept 5% each in small-cap and mid-cap index funds. A mid-cap index fund might invest in companies such as Commercial Metals (NYSE:CMC), F5 Networks (NASDAQ:FFIV), and Urban Outfitters (NASDAQ:URBN). A small-cap index would include companies such as Deckers Outdoors (NASDAQ:DECK) and Immucor (NASDAQ:BLUD). (Small-caps can help you be "Better than Buffett," since they can provide greater returns.)

If you'd like to invest in index funds, look into Vanguard's offerings, since they tend to be the least expensive. On the other hand, if you want to follow the AEA's lead and put more of your money to work internationally, you can find the most promising companies in the world with a test-drive of our Motley Fool Global Gains newsletter, absolutely free.