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Invest Well by Keeping Things Simple

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The other was the Vanguard Global Credit Bond Fund, an actively managed fund that has almost 60 percent of its holdings in U.S. debt and the rest in international issues. Its expense ratio is 0.35 percent for the basic fund, and it drops to 0.25 percent if you invest at least $50,000 in it.

It has only been around for three years, but I liked some things about it. First, the majority of its non-U. S. holdings are hedged, so my friend would not have to worry about currency risk. Second, according to the Vanguard website, the fund holds only 26 percent of its portfolio in bonds with maturities of 10 years or longer, reducing some of the risk of rising interest rates, which hurt longer-duration bonds more severely than short-term instruments.

Settling on just two funds and on these two in particular were arbitrary decisions. I could have given her just one, a global balanced fund, for example. That’s the term for a mutual fund that invests in both stocks and bonds around in the world.

But if you go that route, you are locked into exactly how the fund manager thinks your money should be invested. I wanted to give my friend more control.

A potential objection to my stock recommendation is that the Fidelity fund holds only U.S. equities. Many experts say a diversified portfolio should include stocks from around the world, but I’m not so sure. After all, the largest U.S. companies receive a significant part of their revenues from overseas. About 30 percent of the sales recorded by members of the S&P 500 come from outside the United States, for example.

I figured that would cover international diversification. Is that a perfect solution? No. But I was striving for a solid and relatively simple recommendation. Besides, this was an argument that John C. Bogle, the founder of Vanguard, endorsed. If you invest in the S&P 500, he maintained, you are investing in the world.

I could have recommended a global stock mutual fund, but didn’t find one I was completely comfortable with. For example, while I liked the T. Rowe Price Global Stock Fund, it has only 55 percent in U.S. equities, and that wasn’t enough for me.


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