I'm 25 and looking to invest some cash in international mutual funds. Should I sink some money into, for example, a Pacific fund, or am I better off investing in a total international fund? -- Dan Hanover
First, take a look at what you already own. You may already have international investments through what look like domestic mutual funds, says Robert Wacker, a financial planner with
R.E. Wacker Associates
in San Luis Obispo, Calif.
Mutual Beacon, for example. This fund, one of the
Franklin Mutual Series
family, is called a growth and income fund, but it can invest in the U.S. and abroad. At the end of the first quarter, the fund had 55% of its assets in the U.S. but was also invested in the U.K., Sweden and France.
You may already have enough of your assets invested internationally. Investment professionals will debate how much of your money should be residing overseas, but 15% to 30% is an oft-mentioned target range for your equity allocation.
I am also assuming you already have some of your money invested in the U.S. market. If you don't, you may want to consider starting here first. "It's unusual and not prudent to invest overseas and not in the U.S. markets as well," asserts Wacker. (You should always consider your investment needs and goals. If you are going to need this money within five years, then it shouldn't be in the stock market, neither here nor there.)
If you need a fund that will give you both international and domestic exposure, try a global fund. A fund like
Global Value is a good example. At the end of last year, 14% of its assets were in the U.S. and Canada, 52% in Europe and 18% in Japan, according to
If the fund that you are asking about is going to be your only international exposure, you may want to go with a broadly diversified international fund, one that covers multiple countries and regions.
When you buy an international fund that invests in one territory, you are making a big investment decision on your own. You are betting that the market of that country or region is the one that is going to outperform all others. It might be best to leave that decision up to a professional.
"We don't even try and do country-specific or regional funds," says Ron Roge of
R.W. Roge & Co.
in Bohemia, N.Y. "They can make tremendous amounts of money in one year and lose tremendous amounts the next year."
Indeed they can. Remember the trajectory of the
Lexington Troika Russia fund? In 1997 the fund returned 67.5% and then turned around and fell 83% in 1998. This year it was up 44.7% through last Thursday, according to
. Perhaps you have the perseverance for that kind of performance. I don't.
With a fund that invests all over the world, you will get much better diversification. And the fund's manager will be the one making (and sweating over) the investment decisions.
If you do decide on a broader international fund, you will have even more decisions to make from there. Some diversified overseas funds take big country or regional bets, and you may not want to wind up in a regional fund by default. To name one,
BT International Equity, a fund favored by some financial planners, had 81% of its assets in Europe at the end of the first quarter.
the ones making the decisions. But you may want a fund that is going to give you investments in more markets.
And you may want exposure to both developed and emerging markets. Some international funds will stick to developed regions like Europe and Japan. If you want some emerging markets thrown in with the U.K. and Germany, you will have to look closely at a fund's style and portfolio. The
Foreign fund invests in both types of international markets. At the end of March, the fund had 45% of its assets in Europe but also had 14% in Latin America and the Caribbean.
The emerging markets may make your fund more volatile, but maybe you are looking for this kind of excursion.
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