Should I dump my mutual fund?

Q. I have Vaguard index European fund with a ytd return of 15.7% and Vanguard Growth index with a return of -1.2%.  Would I be wise to close the Growth fund and put it all in European? 

A. It might or might not turn out to be more lucrative, but it would not be wise. That's because it would violate two important tenets in my vision of investing wisdom. First, wise investors diversify. They invest in both stocks and bonds and in both the U.S. and foreign countries. International diversification involves more than just Europe. It's OK to have more money in one area than in another, but not OK to exclude the rest of the world entirely. Second, wise investors do not switch investments based on short periods of performance, nor do they compare apples to oranges. Your US fund should be judged against the Standard & Poor's 500 Index, not against a foreign fund. If it has underperformed for two or three years, you should trade it in for a better-performing U.S. fund, not a foreign fund.

Comments

[Adrian Nenu]

I agree with Helen's advice. You should own a globally diversified, low cost, indexed portfolio to reduce risk and return volatility because all stock markets go through bull and bear markets. The trouble is that no one can reliably and consistently predict these events in order to take advantage of them.

Adrian