Diversify & Conquer

basket,” says Holland. “We’re concerned that the dollar may weaken.” If the U.S. dollar loses ground, the stocks of foreign countries are likely to appreciate as their currencies move up in value.

“We have steadily recommended international allocations,” says Holland, “including international small-cap and emerging markets funds for most clients. Altogether, about 20% of equity allocations are in international funds.” Holland’s favorite foreign funds include Harbor International (a value fund) and Artisan International (which holds growth stocks); for smaller accounts that may have room for just one foreign fund, she cites Vanguard Total International Stock Index Fund, which combines European, Pacific, and emerging markets indexes.

“For international investing,” says Johnson, “China and India are poised for growth while the European Union seems to have problems. My preference is to invest in a world stock fund and let the manager pick the best companies. However, you might want to look and see if the manager has a history of investing in the high-growth areas of Asia.”

Kinnel suggests combining Vanguard International Growth, a large-cap fund that does not hedge currency risk, with Tweedy, Browne Global Value, a fund that invests in smaller companies and hedges in order to protect U.S. investors from a weak dollar. “This strategy can provide more diversification for your overseas holdings,” he says.

Thus, to diversify your mutual fund holdings you must go beyond buying a few funds holding the same blue-chip stocks; you need various types of assets, domestic and international. “Your mother and your grandmother probably told you not to put all your eggs in one basket,” says Baker. “Well, they were absolutely right. You shouldn’t try to catch the ‘next big thing.’ Instead, stick to a diversified portfolio.”

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