 Personal Finance PowerPoint Presentation, International Funds, prepare to get financially fit by practicing personal finance. Most of this information comes from the Vanguard website which we can find online at investor.vanguard.com. In prior presentations, we've been taking a look at investment goals, strategies, tools, keeping them on the two major categories of investments, that being the fixed income, typically the bonds and the equities, typically the common stock, also thinking about different tools we might be using to invest like mutual funds, ETFs, possibly helping us to diversify with less initial investment. In the recent presentations, we've been diving into these funds in more depth, thinking about different categories and classifications of the funds which could help us with our investment strategy, helping us to diversify our portfolio in a way that works best for us. Quick recap of the different kinds of funds, we've got the money market funds, we talked about in prior presentations as with the bond funds, balanced funds, the stock funds. Now we're taking a look at the international funds and later we'll take a look at the sector and specialty funds. So remember when we're thinking about investing, we want typically a diversified portfolio as an individual investor. It can be difficult to do that by individual stocks and individual bonds and costly due to the transactions fees. Oftentimes we take on the use of the tools such as mutual funds and ETFs, helping us to pool our money together with other individuals so that the fund manager can then spread that money out and invest amongst a broader array of funds. Now note then we have to think about what's going to be the strategy if we are using the mutual funds and the ETFs. We could then try to pick one fund for example like some kind of balanced fund that we talked about in prior presentations to try to get a balance in one fund and let that fund cover all the bases or we can try to have more control even though we're not going to individual stocks but with funds by going through some of the different categories of funds having a different fund for the bonds versus the stocks and then possibly multiple funds for the bond funds that are more strictly classified and the stock funds and so on and so forth. So keeping those strategies and those concepts in mind now we're going into the international funds. So the international funds get exposures to one more thing on the funds before we move forward also just realize that when you're thinking about a 401k plan or an IRA, some type of retirement plan, you usually have those as kind of like an umbrella over the mutual funds. So you don't want to think about those as a completely different thing than like a mutual fund typically or an ETF because they're basically the same thing. They're just kind of like under the umbrella of an IRA or a 401k plan which means you've got different tax emphasis or components to it. So you want to think okay is my investing in mutual funds or something like that is that mutual fund under the umbrella of a tax incentive plan like a retirement plan of some kind or is it not? What are the tax implications of that? Okay international funds get exposure to investment opportunities and developed and emerging countries. So as we've talked about in the past we've talked about this concept of different kinds of stocks for example and so we can think about the stocks if a company lived they would go all the way through their cycle here and if you're investing in like an Apple or something like that you would like to get it at its growth spurt down here because then it's growing at a steeper rate at that point. That's when you can get the biggest benefit from it and then if a company goes up to here and their life cycle like Apple possibly now or like utility companies the phone company then they're kind of marching along you don't expect a huge increase in growth but you expect kind of steady growth and steady possibly dividends you know at that point in time. You think of a similar kind of structure with regards to countries. So countries you would think would go through a developing process as well. So you would expect like some countries would go through this growth spurt in a similar fashion which would mean that there's huge investment opportunities possibly in those countries and then you got some countries that might be marching along after they've already gone through let's say like the industrial revolution or something you know like that. So that means that the developing countries have a lot of potential because you can say hey I mean if they just did a few things if they got so many people if they just were able to put those people to you know capitalize put some capital principles in there possibly it might engage the workforce and their production can skyrocket and then the growth could go up a lot more than possibly develop countries like the United States. So that's one reason people want to get exposure to countries that are developing because they they're going through that growth spurt that developed countries have already gone through. However of course there's a lot more risk as well with that kind of strategy to one of the big benefits in the United States one of the reasons that a lot of money in capital goes into the stock market the U.S. stock market in general is because of there's there's trust there's there's stability there so you got that risk versus reward. We can also of course use the international stocks as a balancing as a hedge as a diversification tool. Okay so keeping that in mind international funds can provide additional diversification in a well-balanced portfolio international mutual funds add diversification to a U.S. focused portfolio by giving you access to hundreds sometimes thousands of foreign securities which spread out risk more than owning just domestic stocks in general we suggest that at least 20% of your portfolio be invested in international stocks and bonds that's according to of course Vanguard so you can take a look at these general kind of recommendations and remember when you're looking at like a balanced fund the kind of fund that's going to be balancing between say stocks and bonds and so on they're going to have to pick what they think is the best kind of heuristic in terms of past data and the general consensus in terms of what the percentages should be in stocks and bonds and then when you're talking about stocks U.S. stocks foreign stocks and so on and so forth and if you're going to try to give yourself some more leeway by investing in say possibly not individual stocks but in mutual funds that are going to be in certain segments like stocks but not just one stock fund that's going to be diversified but say you're then going to go into different funds based on market cap for example and U.S. stocks versus then international funds you can use those kind of recommendations as basically a baseline you can see well what is the standard balance fund do and then and then tweak that as you see fit if you're trying to do a more customized type of investment strategy so get broad exposure to international markets you can use just a few funds to invest overseas each of these funds gives you access to a wide variety of international securities in a single diversified fund so you got the vanguard total international stock index fund so clearly when you're thinking about investing in other countries some of the problems will be that it's difficult to invest in other countries because because there's not as much ease of access you got the the regulatory burdens are different so it all it hasn't always been easy to diversify in this way it's becoming more and more able to do so once you decide to invest in international stocks well then the question is I don't know what to invest in I have no idea so you might say well what I want to do then is invest in like with the individual stocks you're going to invest in the sector possibly by getting an index fund that's going to cover giving you broad exposure to a wide variety of international stocks something like the vanguard total international stock index fund so it holds more than 5500 non U.S. stocks you got the vanguard total total international index bond so you got the same thing on the bond side of things so we're I'm typically kind of focusing on stocks here but remember you could you when you think about bonds the fixed incomes type of stuff often we think about like U.S. companies oftentimes and the government entities U.S. government entities but you also have bonds from foreign entities as well and you've you've got the same kind of circumstance remember with the bonds you think of the bonds is kind of like you're loaning money to the issuer of the bond whether that be the government entity or whether that be the corporation and when we think about U.S. government bonds those are usually the safe haven of the bonds so you would think the U.S. government bonds would be the safe haven if there's a problem or downturn in the world people are concerned and but because there's so little risk you would think that they're not going to pay as much interest that means that corporations large corporations for example would have to pay more interest if you're going to buy a corporate bond that a government bond because there's more risk even if that corporation is a well-established corporation similarly to foreign governments and foreign corporations you would think that they would have to pay more interest which would be good for us because there's more risk involved in it then say investing in the U.S. bonds which theoretically they can print money if they want more in danger of defaulting or something like that's a very low risk so the this one holds about three thousand non U.S. bonds so there are a few ways you can invest in foreign markets international funds invest only in foreign markets excluding the United States global or world funds combine investment in foreign markets and the United States so now you get you get into this okay well if I want to get exposure to foreign markets and I'm using a strategy or tool of mutual funds or ETFs then I got to say well can I get a balanced fund possibly that has everything involved in it has both U.S. stocks bonds foreign stocks and so on and so forth or should I should I try to get some combination of mutual funds that covers me on the U.S. side of things and then also get another fund that covers me on the foreign side of things and remember then you got to think well how am I going to balance these out if they're telling me at 20% of my investment should be in foreign funds and so on how would I get an idea of that you might use a tool like financial planning software like a personal capital I think has a tool but I'm not advertising for them you can use anything you want but if you then take that and group it together they can basically group all your funds together or possibly the vanguard website can do that for you even though you're invested in multiple funds as well and so you get an idea of your weights because the weights in the funds will change if you have multiple different funds so keeping that in mind we could have remember that if you're looking to invest elsewhere out of the United States the international funds invest only in the foreign markets versus the global or world funds in combined investment in foreign markets and the United States so if you do the second one you're also putting money in U.S. stocks again and if you already had money in U.S. stocks you know you got to keep that in mind okay so regional funds focus primarily on a specific part of the world like Europe or the Pacific region so you might get like we have with individual mutual funds you might like an individual stock funds you might invest based on market cap or based on industry when you go into foreign funds you might say hey look I'd like to get a little bit more control over that instead of just investing in all the rest of the world maybe I want to invest by region maybe I have more optimism about Europe or the Pacific region and then you can invest in mutual funds for them specifically and then you can have more leeway you have more ability to adjust those funds if needed so develop market funds invest in foreign countries considered to have proven economies like Japan France and the United Kingdom so emerging markets funds target developing economies like India Brazil and Taiwan so notice when you're going into other developed areas you would think like Japan France and the United States that they would be you know somewhat stable they're going to be higher on that curve that we were talking about right they're going to be higher up over here and possibly not so much on the growth side of things whereas when you have the emerging markets whereas the emerging markets at least have the potential for more expanded or explosive type of growth but of course there's more risk related to it as well so if you look at some of these places you'd say hey there's a lot of people in these places if they got just a little bit more efficient possibly having just like a little bit more capitalistic type of policies that would increase the efficiency a bit and put some more money in people's pockets that would have a huge impact on the growth possibly but and and that's opposed to say something like the United States which from a comparative standpoint is pretty high up on the curve already in in relation so you would think that you wouldn't see that same kind of explosive type of growth or have that potential for the explosive type of growth there so but again a lot of risk involved with it as well so would you prefer index or active funds so do you feel more comfortable tracking the market or would you rather try to beat it so this is once again we get into this and say okay now that I'm invested in mutual funds do I want to just invest in the region in general the markets as a whole and that would be taking possibly an average so just give me the average of the funds or do I want to try to get an active manager that's actually going to beat the average and when we talk about index funds that's kind of like the average of the market to be similar if we're trying to get an idea of what people think about about the politician or something we're taking a poll then we're going to take a sample of the population and try to extrapolate what that means about the entire population that's what we do with the funds as well so we're going to try to measure the performance by taking a group of stocks that we think represents the region that's the index we can then tie the mutual fund to the index which means we're tying the hands of the fund manager so that it should reduce the cost of of the investing strategies and make sure the fund manager just basically ties to the index or you could you could pay the fund manager to try to beat the index and your the question would then be do you think they could beat the index such that they they clear the amount of the cost for their work so index funds try to track the performance of a specific market benchmark actively managed funds are steered by our expert portfolio managers who select specific securities for the fund well these funds give you a chance to beat the benchmark they can also underperform so what if I want to invest in companies that support my values so now we've got another kind of threshold in here in terms of mutual funds it can be kind of concerning when you put the money in the mutual funds because they're gonna put money everywhere and they might put some money in some companies that you just don't believe in you say yeah that company's not really good I don't want to give my money to that particular company but because I'm invested in a mutual fund then it might be going to that that that particular company now there's different ways that they're trying to address this so consider ETFs exchange traded funds and mutual funds that take a company's environmental social and governance ESG track record into consideration now these funds are they have they have like a good concept to them because you would think okay yeah I want to invest in stocks that that are doing good for the world but at the same time it starts to get political so now you've got this tagline which is kind of like a brand that the brand is being stamped on these different companies and that that brand now has value so it kind of makes me go back and forth I like I like the concept of it I like the concept of investing in funds that are doing things that you believe in but then I am somewhat I'm extremely at this point skeptical of this kind of branding situation because that gives power to whoever's the regulatory whoever's the body that's that's gonna stamp this brand on something which can increase the value of it just by the brand of it which I'm I think the brand could then deteriorate over time and not actually be giving you know what it was designed to give so I think as I'm a little skeptical we offer a lineup of ESG investments that can help you achieve your financial goals and match your dollars with what matters to you