I decided it would be fitting following my super fund annual checkup to give a breakdown and assessment of two mutual funds in our portfolio. In my opinion these 2 funds epitomize the highs and lows as well as the perceptions and realities that come when looking at investing in the stock market.
Within our taxable brokerage account we have a small army of 8 mutual funds. From the 4 categories of mutual funds that Dave Ramsey advises to invest in, in our brokerage account we have 2 of each. The two that I am going to focus on today are the 2 international mutual funds that are in this account. So as I go forward in this tale please keep in mind that across all of our investments we are earning a little over 16% average annualized returns, and this is only a micro look into 2 funds that help make up that 16%. I still only advise investing in historically proven mutual funds and buying and holding for at least 5 years, but I have the feeling you already knew I would say that J!
When I began investigating, researching and compiling what mutual funds would be in our taxable brokerage account it was the winter of 2008. The market was freefalling and blood splattered the streets red. Panic was everywhere like a fast spreading disease. As a lot of investors were jumping off the roller coaster and selling their equities for bonds or opting for cash, my wife and I were determined to start our investing portfolios right then and there (my wife more than I, admittedly).
I am confident and proud to say that the American economy (as a group) is the most resilient force on the face of the planet. It is resilient against war, depression, recession, threats of war, economic busts and acts of terrorism. So when it came time to assess and look at international mutual funds, I was even more stringent than usual.
Europe as a whole dictated how I strategized the international mutual funds that would end up in our portfolio. The economies of Spain and Greece were wreaking havoc on the Euro and the region as a whole did not appear to be on the upswing to me. However, when I look at Europe I see a developed group of nations, that as a whole, is incredibly stable. But outlook to me at the time said that over the next 5 years, if an international mutual fund carried a mix of European companies, that it was going to be very tough for that fund to average 12% average annualized returns in that region.
So I took a swing. I decided to look at international mutual funds that looked outside of Europe and were region specific. That led me to 2 mutual funds that met my strict criteria and took me away from the Euro. These funds were region centric to the Asia-Pacific and Latin America.
More than being fascinated, I have always been drawn to this part of the world, from an investing point of view, as a great mix of emerging and developed markets. Aside from China (because everyone already knows about it!) just about every country from Japan to Australia has seen excellent and continuing growth from blue collar manufacturing to white collar financial. Now while our mutual fund that focuses on this region has a slightly higher weight on companies in China, the contribution, growth and development of this region has happily contributed to this mutual fund earning 22.76% average annualized returns while we have held the fund. Solid growth, great diversity and tremendous upside, our APAC centric mutual fund has been a winner through and through.
Then there’s this one. In the 9 week version of FPU Dave asks if any of us have had so many kids that we have a stupid one. Well, this is my stupid one. It had been about 3 years since I bought my first set of mutual funds in our brokerage account and I was gearing up to buy the next 4. I still felt the same way about Europe, and at the time (and I still feel this way) I felt bullish on Latin America. My positive feelings generated from two things: (1) Brazil hosting the 2014 World Cup and (2) Brazil hosting the 2016 Olympics. With a horizon right at 5 years I still see upside for the region. So I sought out a Latin American centric mutual fund with my heavy hitting criteria, and specifically looked for ones that were slightly weighted towards companies in Brazil. I still see these 2 events as a steroid shot for the economies in the region and I remain bullish, probably to my own fault in this case, through 2016. To date our Latin American centered mutual fund has returned -16% average annualized returns for us. Ouch!
I still see upside and look forward to the region hosting the World Cup and Olympics. But once the torch is lit in Rio we will be liquidating our Latin American mutual fund and seeking a global fund that meets my strict criteria. I do think this mutual fund will turn around as 2016 approaches and come into line with its historical averages, but beyond the Olympics we are planning to cut the investment and seek another fund. So we will continue to hold the shares that we have invested until the torch is lit, but we will not be purchasing any additional shares and have also elected to not reinvest dividends and capital gains and will liquidate this fund once the Olympics begin in 2016.
So there you have it, one nicely up, one disappointingly down. But as I go forward I will continue to stay diverse in my investments with historically proven winners. Because through all of our investments I find it interesting that even with a negative 16% loser, our overall portfolio is up 16%...ironic??