Never forget these two axioms:
Money frees us, but its pursuit may enslave us.
It’s not how much you have at the end; it’s how much you could have made.
Portfolio Building, Part IV B
I said posting would be sparse, but the last few weeks was the reductio ad absurdum of that notion and for that I am profoundly sorry.
Lot of things happened—some good, some bad—in the interval.
In short, life happened.
Once again, I’m truly sorry.
Anyway…
Let’s pick up where we left off.
You’ve decided you’ve wanted to have a small portion of your retirement portfolio invested in international funds.
One point before we move on:
Given how well diversified and well covered the US would be by a trio of S&P 500 fund, mid cap fund, and small cap fund, your international investing should be comprised only of countries that are based out of the US as to not overlap investments of the US based trio with your “international” fund (which if you’re not careful could be a “global fund” where 50% of the fund is actually invested in US companies all over again).
So now what?
Here are a few options for international investing:
1.) Pick what is known as “ex US” fund (which means any country “ex”cept the US) all for one simple fee (the lower, the better as always). This leaves tens of thousands of companies over dozens of countries, so someone or many people will need to do the research on where to put the money and to continue to follow if that remains a good investment. Therefore, these funds usually (but not always) will necessarily be actively managed, so mind those fees and make sure that the returns of the fund are rock solid in terms of how good they are and how consistent they are even after the fees are subtracted out.
Examples (but not suggestions): Vanguard FTSE All World ex US Index Fund, iShares MSCI ACWI ex US ETF (Yeah, even the names of these funds are intimidating.)
2.) Pick a regional fund which focuses on one geographic area such as Europe, Asia, the Middle East, Latin America, or even sole countries such as Japan or Turkey. It’s completely fine to do this, but there are several caveats to be noted here.
A,) You MUST have some general knowledge of the region or country. Vacations or a semester abroad fifteen years ago which was composed of mostly boozing is not field research and does not constitute deep understanding of international geopolitics. If you don’t understand the area/country, don’t invest in it solely. What makes it attractive now may be annihilated by civil war, political strife, a trade war, sanctions, or just plain mismanagement among many other variables.
B.) You MUST know who the managers of these funds are that you are so enchanted with. You must know who they are, what their expertise in this region/country is, how long they have been managing the fund, how long they have been managing other funds or in the mutual fund business altogether, and, likely, most importantly, the fund managers’ performance (minus fees as always) at the fund you plan to invest in for the time he/she was the manager. If their performance is great/stellar and everything else checks out, then go ahead…but one last caveat—you need to ensure that you keep track of the fund manager himself/herself. If the manager retires/dies/move on, then you might have to do the same.
Examples (but not suggestions): VanEck Vectors Egypt Index ETF, iShares MSCI Chile Index Fund, WisdomTree India Earnings, Fidelity Nordic Fund
3.) A hybrid fund worth mentioning is the regional funds that mix and match geographic regions such as Middle East/Africa, Africa/Asia, or Europe/Middle East. All of the above caveats for regional/country funds still hold true even though (in theory only) the risk should be less with a wider geographic distribution to draw from.
Examples (but not suggestions): T. Rowe Price Africa & Middle East Fund, Commonwealth Australia/New Zealand Fund
4.) There are funds that group together disparate countries that may or may not have anything in common like the oft-mentioned BRIC (Brazil, Russia, India, China) nations which were rapidly developing with huge growth rates in their economies (not so much as it turns out especially since these countries have absolutely nothing to do with one another) or the lesser known CIVETS (Colombia, Indonesia, Vietnam, Egypt, Turkey, South Africa) which were touted to be emerging or frontier markets (which also didn’t quite work out…at least so far).
Examples (but not suggestions): The less said here, the better…
If this isn’t already confusing or daunting enough, then consider this: Not only are there country or region funds like the ones above, but then each country or region could also have large cap, mid cap, or small cap funds and then each of those could be value or growth or a blend between the two in investing style terms therefore each country/region could have at least nine types of funds to compare and contrast with one another.
5.) The potentially riskiest of all international investing for the average retail investor is the stocks of non-US based companies. If you aren’t already experienced in individual stock investing in the US or even the largest non-US based companies, then you shouldn’t think of putting your hard earned money into individual stock of lesser known companies that aren’t based in the US.
Examples (but not suggestions): Shell, BP. LVMH, Nestle; the lesser known companies are ones like WalMart of Mexico, Arcos Dorados (you already know what this is if you know Spanish), and Infosys which are all multi-billion dollar companies even though you may have never heard of them
6.) International bonds, commodities, or even real estate are potential investments, but are the riskiest of the listed securities. These are neither for the faint of heart nor for the novice investor. If you haven’t been heavily invested and experienced with the above securities domestically first, then you shouldn’t even consider an international version.
Examples (but not suggestions): If you don’t already know, you don’t need to know.
Enough for one post…
I’d love to hear from any and all of you about your thoughts, so we can all learn from one another.
Please spread the word about this blog to your friends (real and virtual), family, and colleagues. Talk to you soon.
Until next time…