Question: Over the years, we have developed a diversified portfolio of stock, bond and money market funds, including domestic and international stock funds as well as some global stock funds. Do global stock funds have a particular place in a diversified portfolio? I'm thinking of liquidating them and investing the money elsewhere.
Answer: Think of global stock funds as all-in-one stock portfolios because they hold both U.S. and international stocks, including shares in emerging-markets companies. These funds typically hold roughly 50% of assets in U.S. stocks and 50% in foreign stocks in developed and emerging-markets countries.
To decide whether you should ditch your global stock funds, answer a few questions. First, do the funds’ allocation to U.S. and international stocks fit with your overall allocation plan? A moderate-risk portfolio for a 45-to-50-year-old investor with roughly two decades to go before retirement should devote more than 50% to U.S. stocks, as much as 30% to foreign stocks and a little less than 20% to bonds and cash.
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If you find it difficult to figure out the overall allocation of your portfolio, check out Empower. Once you sign up for a free account and link your investment accounts, the site will calculate your allocation. You can see a single aggregate view of all of your accounts by asset class, stock sector or even individual holdings. You may find your portfolio needs some realignment to get back on track with your target allocation, which could mean you’ll need to unload some shares in your global stock funds, as well as other funds.
But let’s assume the global stock funds work with your target allocation. The next question is, are they good funds? Some global stock funds are standouts, including Vanguard Global Minimum Volatility (VMVFX). If the funds you hold are poor performers, you should feel free to sell them in exchange for a better option. Just be aware of the tax consequences if your fund is in a taxable account, and be sure you have a worthy alternative in mind that fits with your overall investment plan.
Even if your global stock funds are solid performers, do you have your eye on another investment opportunity that you find more attractive? In that case, you could sell some or all of your shares in the global stock funds to free up cash, especially if they have posted strong returns in recent years and you’re taking profits off the proverbial table. Always go back to your investment plan, however, and make sure any moves you make stay in line with your target allocation.
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