Should I Diversify Globally, The Benefits of Holding Global Stocks in a Portfolio
In this blog post, we’ll seek to answer the question of “should I diversify globally?” and will look into what this would do for the overall correlation of a portfolio, how this would affect Beta and your overall diversification, and a host of other factors. Personally, I think that holding a global index fund is even better than buying the S and P 500, and I think that it can really add a ton of value to a portfolio, especially in a market such as this one. Buying a passively managed global index fund as part of a portfolio is literally the best possible way that an investor can diversify their portfolio, as it makes ones investments a product of the total world stock market, as opposed to one of just a basket of a certain country, sector, or company. In this blog post, we’ll look at why you should diversify globally, and will walk through why I personally hold Global Index fund stocks in my own portfolio. For more information, be sure to comment down below or to subscribe to our blog for additional details and information.
Among my other favorite indexes to hold inside of a well diversified portfolio include the following:
VT, A Vanguard Global Index Fund
The Nikkei 225
The S and P 500
The Wilshire 5000
The New York Stock Exchange
The Dow Jones Industrial Average
The S and P Global 100
The S and P Latin 50
The Hang Seng Hong Kong Index
And a host of other popular indexes, read on or subscribe to our blog for additional details and information.
Should I Diversify Globally? The Benefits and Risks of Holding Global Stocks in Your Portfolio
So, I would say that yes you should definitely have some global diversification in your portfolio, and that without it you are taking the serious risk that you are betting on only one country, and that you are not holding all stocks in the stock market. I commonly see among finance students that in index fund theory, when they say “hold all the stocks in the market,” students think that they are referring to the S and P 500, which is only US stocks, and primarily US large cap stocks at that. With this in mind, I think it is important to hold a global stock position within your portfolio that is comprised of something like 65,000 stocks, which is the total number of stocks on the planet currently, which includes large caps, mid caps, small caps, and the like.
I personally would say, that with regards to Global stocks however, while it is clearly obvious that they are the safe choice, that you should have half your global stock position in a Vanguard index fund, which pays no dividend, and half in an ETF that pays a 1% dividend, as most typical global stock index fund ETF’s will pay. This will make it so that you have some income from your portfolio that you can spread around, and also will make it so that you are able to have liquidity and comfort off of your portfolio.
Should You Buy an Index Fund or an ETF That Pays a Dividend? Why I Would Personally Hold Both for Global Stocks
Again, as stated in the former, I think that you should hold both, at a 50/50 split with regards to the global stock portion of your index fund portfolio. The reasons why are that it gives you additional liquidity to your portfolio without having to sell any stock, thereby increasing your tax implications, but also does it make it easier for you to dollar cost average your portfolio if you see another stock at a better price. The ideal Portfolio for me goes something like this:
Assuming a 55 Year Old Male with a $2,000,000.00 Net Worth
$50,000 CD Ladder
$600,000 Global Index Funds
$1,000,000.00 S and P 500
This will give you great diversification, cash and liquidity that will sustain you for a lifetime.
Final Thoughts on Buying Global Stock Index Funds, and Why I Recommend Putting 40% of Your Equity Holdings in Them
In summary, it is vital that Global Index funds are included as a part of a well balanced portfolio, especially as you get older and closer to retirement. They offer far better diversification benefits than even the S and P 500 in that it is now very tech heavy due to the now crazy Market Caps of Apple and Amazon. I personally hold Global Index Funda in my portfolio, and will continue to do so forever. For more information, remember to subscribe!
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