Reading Time: 3 Minutes
Are you getting a true global stock fund or just claims that the fund is “global”? Read this to make sure.
Global Stock Fund – Global Stock Market
Most everyone knows that if you want global stock market exposure the common approach is to purchase one of the many global stock fund choices we currently have available. However, how “global” are these funds? In my book, global is truly worldwide. I want companies from all over the world. You may be thinking this is a no-brainer and we should just go buy a Vanguard fund like the Total World Stock Index Fund. It is a good choice but have you looked under the hood of this fund? Not likely! Yes, it is a diversified fund and it charges low fees but did you know that 42% of the fund is in U.S. companies? That doesn’t sound too “global” to me.
In fact, according to Brett Arends (author of Storm Proof Your Money) most all of the “global” funds sing the same tune. For instance, the iShares MSCI All-Countries World Index ETF is loaded up with U.S. companies too! It can get upwards of 50% in some of the actively managed funds. Look, I get it. The United States has a large global presence and is the world’s largest economy. We have some big global companies like Exxon Mobil, Wal-Mart, McDonalds, etc. However, the U.S. economy accounts for about a fifth of the world economy. What about the rest?
Global Stock Fund – Global Stock Market
Well, according to money titans like Blackrock and Vanguard they build their global stock fund models off of the country weightings in the global stock market indexes. Basically, they either follow the index to a tee or use the indexes as a benchmark. These benchmarks get their weight based off of market capitalization. U.S. companies get more weight because their value is higher.
You may be asking, “Ok Jan, why should I care?” Well, take a look at your current portfolio. I bet you have your claws into some index funds like VTSMX Vanguard’s Total Stock Market Index or an equivalent. Well, do you see the dilemma here? You are WAY loaded down in the U.S. stock market. Chew on that a bit.
Yes, there are plenty of managed solutions out there but they aren’t really low cost. You’ll get eaten-up in expense fees.
Plus, most managers don’t have solid stock-picking prowess we think they do. Don’t believe? Do some research!
Global Stock Fund – Global Stock Market
So, the next question may be something like, “What should I consider doing about it?” Well, the choice is always yours but I would consider building something yourself. Look into building a portfolio based on U.S. companies, developed overseas companies, and companies in emerging markets. If you build it using ETFs or index funds you’ll keep costs way down. To keep it simple consider 33% weighting in each category. Arends recommends looking into the non-diversified iShares Dow Jones U.S. Index Fund, the iShares MSCI Europe, Australasian and Far Eastern Index Fund, and the iShares MSCI Emerging Markets Index Fund. He also recommends rebalancing once or twice a year.
Overall, I think this is a much more balanced strategy than just going out and buying a global stock fund.
Click Here for the Best Books on Global Markets
Related posts:
Recent Comments