Differences Between World Stock and International Stock Funds

Don't Confuse World Stock With Foreign Stock Investing

international investing
See the differences between world stock fund and foreign stock funds. Getty Images

Most investors have heard that it can be smart to invest in international stock funds. Then they go and look for international stock funds and find one that is categorized as "world stock." Is that international? The short answer is "yes" but there is more to know and some investors could be making mistakes without all the necessary information.

Before going any further with the lesson, it is important to understand that international stock is a general term, which can refer to any stock investment type, such as a mutual fund or ETF, that invests in more than one country.

Therefore it is wise that investors learn to look for funds categorized as "foreign stock" if they want a fund that invests primarily outside of the United States.

World Stock Funds vs Foreign Stock Funds

A mutual fund in the World Stock funds category can invest in countries around the world. They will typically have 20%-60% of assets in U.S. stocks. By comparison, a fund in the Foreign Stock category will have more than 80% of its holdings outside of the U.S. Therefore, for diversification purposes, Foreign Stock may be a better choice for the average investor because there is less overlap with their mutual funds that invest in the U.S.

The most appropriate use for World Stock funds may be for investors looking to gain exposure to foreign stocks while maintaining exposure to U.S. stocks. But if the investor is looking to diversify a portfolio by investing in a fund that has concentrated exposure to stocks outside of the U.S., the investor will be wise to look for a fund that is categorized as foreign stock.

To be certain, investors are wise to look for a fund summary that tells how much of the fund portfolio holdings is allocated to foreign stocks.

Disclaimer: The information on this site is provided for discussion purposes only, and should not be misconstrued as investment advice. Under no circumstances does this information represent a recommendation to buy or sell securities.