Debbie Carlson, Contributor to the Wall Street Journal, joins us to unpack a subtle but costly source of confusion for investors: the difference between “international,” “world,” and “global” funds and ETFs. These terms may sound interchangeable, but they can signal very different holdings, and because broad labels like these aren’t tightly regulated by the SEC’s naming rules, what’s inside can vary significantly from one fund family to the next.
Transcript:
Jeffrey Snyder, Broadcast Retirement Network
We’re going to welcome back to the program, Debbie Carlson. She’s a contributor to the Wall Street Journal.
She’s also a contributor to Barron. She writes prolifically. Debbie, it’s always great to see you.
Thanks for joining us this morning. Hey, thanks for having me. You’re right up there with, I think, Mark Twain or Anne Rice of retirement and financial writing.
Debbie Carlson, Contributor, Wall Street Journal
How about that? Well, you know, Anne Rice did write about vampires, so, I mean, imagine what kind of retirement strategy or stat would need.
Jeffrey Snyder, Broadcast Retirement Network
Yeah, that would be, actually, it’s a good idea for a future show. All right, Debbie, I reached out to you because you, or you, we talked to each other. You wrote a great piece about knowing what you own.
And I want to, before we kind of get into the meat and potatoes, what was the genesis of the great piece that you wrote for the Wall Street Journal?
Debbie Carlson, Contributor, Wall Street Journal
Thanks. Yeah. Well, thanks for asking about it.
The story came from speaking to kind of a savvy investing friend about international investing, which of course, as we know, has become really popular in the past two years as international markets are outpacing the S&P 500. And he did not realize that there was a difference between international and global and world. And I thought, wow, if this is my savvy friend didn’t realize this, then I bet there are other people who haven’t realized that.
And, you know, as a result from our conversation, he changed his asset allocation. So I thought, you know, let’s look into this a little bit deeper.
Jeffrey Snyder, Broadcast Retirement Network
So you looked into it, and again, I, you know, I think it’s, you know, in all seriousness, you write very thoughtful pieces, and that’s the thing that we like to cover on the show, and as do many of your colleagues, so I don’t want to just exclude anybody else. But let’s talk about what does global, what do all these terms mean? Do you have a feel for what they mean relative to one another?
Debbie Carlson, Contributor, Wall Street Journal
Sure. So I’ll give you a little bit of a history lesson, as I know you like.
Jeffrey Snyder, Broadcast Retirement Network
I love history.
Debbie Carlson, Contributor, Wall Street Journal
Yes. So international investing has been around for a while, and historically, it meant owning developed markets outside of the US. But as emerging markets began to open to foreign investors, that meant the index providers created new labels called world and global to add this to the investing mix.
And so what it meant is unlike international, which did not have the US, world and global could include the US because, you know, we are part of the world.
Jeffrey Snyder, Broadcast Retirement Network
I mean, that is true. If you look at the earth, you can definitely see the United States. Again, that’s a different segment.
But let me ask you, for your friend who’s a savvy investor, but also real Americans out there who are investing either in a retail account or a 401k, how would they, because there’s like 10,000, over 10,000 mutual funds, I mean, there’s more mutual funds than there are stocks trading on the exchange. So how would I know? Let’s take Jeff Snyder, because he’s a good example.
How would I know whether or not my fund is investing in aligned with its label?
Debbie Carlson, Contributor, Wall Street Journal
Yeah, it really does come down to looking under the hood. And the reason is that unlike, say, if you had a high yield bond, that is a specific term that your bond fund will say bond fund has to have, you know, 80% high yield bonds in it. There are no standard industry definitions or regulations when it comes to really generic terms like international and world.
So what it means is you have to understand how the index provider and the fund issuer is defining that. And literally what this means is not just picking something by a word, but by looking at it. And I think a perfect example is, as I mentioned, the story as the example is the Vanguard Total World Fund and then Total International Fund.
And that one change, world versus international, shows you that the world fund will have U.S. stocks in it, but the international doesn’t. So it’s not just picking by a name, but opening up the fund, looking at the fact sheet and seeing are there stocks there you recognize? You know, if you see Microsoft in your world fund, then you know it’s going to have U.S. companies.
Jeffrey Snyder, Broadcast Retirement Network
So, you know, Debbie, it’s really good information. You know, each of us probably gets in some way, shape or form the prospectus because that’s a requirement under the law, or at least under the regulations that we have, you know, and it may be I doubt they mail them anymore, but mostly it’s delivered through electronic means or you get a link.
Debbie Carlson, Contributor, Wall Street Journal
But would that be a good place to look? Certainly, you could look at the prospectus. And yes, you know, we always say look at the prospectus, but the prospectus can be like 65 pages long.
Like this big. Right, right. Right.
But the best thing for you to do is if you go to, say, like your 401k, you know, for instance, you can click on the name and they have something called a fact sheet, which is usually one page. And it will show you on this one page, the top 10 holdings. It will also maybe show a little pie chart that will break down where the exposure is.
And that is literally you can look at that for like 30 seconds and that will give you an idea. At least this is what I know what that exposure is. So that is the best place to go.
And honestly, your 401k provider or if you go through a brokerage should have some other literature that you could read in bite size information to kind of help you understand what you’re owning.
Jeffrey Snyder, Broadcast Retirement Network
Yeah, and you can, I mean, probably raise the question with your financial advisor if you have one, I would think that that’s really important. And by the way, I don’t think anybody reads the prospectus except for the people that draft them. And they’re really well written if you look at them, but they’re very long and they’re very cumbersome.
Did it surprise you when you looked into it that the terms used for the fund are not governed under specific regulations, at least as it relates to world and global and international?
Debbie Carlson, Contributor, Wall Street Journal
Yeah, it was a little surprising. But I mean, I suppose it does make sense because it is so generic. It’s, you know, this idea is that it’s not necessarily, you know, I would say it’s so broad that it’s hard to define it as you get narrower than, say, if you looked at, for instance, a UK fund, you expect to have UK companies in there.
So I was a little surprised that there didn’t have anything on the government. But, you know, in a sense, maybe it does make sense that because it is such a broad term, as you know, the names rule from the SEC mandates that it has whatever it’s named has to have 80 percent in it. But it’s really more for more specific strategies.
Jeffrey Snyder, Broadcast Retirement Network
Yeah, and I guess I’ll defend the the fund companies for a second and say when you’re and again, you know, I got an MBA in finance. I’m not a portfolio manager. But when you’re diversifying a portfolio, creating a portfolio, sometimes, you know, to diversify that portfolio, you have to bring in other components in order for it to, you know, be balanced.
And so I think that that’s that rule probably is a result of that necessity. Let me let me let me ask you about plan sponsors, because there are lots of plan sponsors out there that sponsor 401K, 403B, 457 plans. Want to make sure I cover all the code sections.
They have fiduciary responsibility for the majority of them. Are there some lessons? And many of them, by the way, work with a financial advisor or a retirement plan advisor.
Are there some lessons here for them as it relates to their retirement plan? And then we’ll talk about education. So start there.
Debbie Carlson, Contributor, Wall Street Journal
So I think the lessons are, you know, just making sure that as they work with the financial advisor, that they’re giving this broad swath of opportunities, but also making sure that, you know, that education is there for their employees, because that’s that’s really critical.
Jeffrey Snyder, Broadcast Retirement Network
Yeah. I mean, when someone enrolls in a retirement plan, as you know, and probably the audience knows if they’re participating in one and they have one, you get an enrollment kit. Now, again, that enrollment kit may come virtually.
It generally is not mailed anymore because of the expense, but it’s there that you would find all the information about your plan from the summary plan description to the fun fact sheets to all the nuances about the plan. But, you know, let’s talk a little bit about education. Is that enough?
Because people, you and I, have very little patience. I’m not saying you have very little patience, but people like you and I have very little patience. I have little patience.
But in terms of education, it would seem to me that this is a really important part of financial and retirement and investing literacy.
Debbie Carlson, Contributor, Wall Street Journal
Sure. Sure. You know, I do believe that a lot of plan sponsors, just from research I’ve done in the past, really are trying to reach out to employees and offer them information in whichever way they’re trying to get it, whether that’s a fact sheet, whether it’s a video, whether it’s a simple graphic of understanding.
So having them understand the funds that are available is paramount because they do have that financial responsibility.
Jeffrey Snyder, Broadcast Retirement Network
Yeah, really important. Debbie, before I let you go, are there any hot, can you give us a tease of what you might be riding on? I always like to ask journalists like yourself what might be coming down the pike, so what can we look out for?
Debbie Carlson, Contributor, Wall Street Journal
Oh, well, definitely more retirement type stories. So I’m sure I’ll be back with another piece once it runs.
Jeffrey Snyder, Broadcast Retirement Network
Absolutely. Well, Debbie, it’s always great to see you. Thanks so much for making time and we look forward to having you back on the program again very soon.
Debbie Carlson, Contributor, Wall Street Journal
Thank you.
