The Best International Index Funds To Build Wealth

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James

Hi, I'm James, author of this article and founder of InvestaMind. Thank you for stopping by! I hope you learned something new today.

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I hope I’ve already convinced you that you need to start investing internationally, and you can do just that by investing in international index funds.

Ready to start but don’t know how to? I’ve got you covered.

In today’s article, we will go over the three best international index funds to start investing in. Please note that all information in this article is accurate as of the published date.

Invest In International Index Funds Instead Of Individual Stocks

Stock-picking is so difficult that even fund managers who dedicate their whole careers to picking the perfect stocks are more likely to underperform the market average. If fund managers have a hard time, it’s probably even more difficult for an average person like you and me.

That is why I recommend investing in index funds. An index fund is a basket of different stocks that come together and make up a single fund.

The key difference with index funds is that they are passively managed. Instead of actively trying to outperform the market, fund managers of index funds only attempt to replicate a selected benchmark. No stock-picking headache involved, just simply buying the whole haystack and profiting with the market.

Invest In Emerging Markets

Emerging markets are stocks in developing countries. Stocks from emerging markets may be more volatile, but they provide a lot of portfolio diversification.

Developed countries have already experienced their development boom and are well-established. The chances that they will go through another economic boom is not likely.

However, developing countries have yet to experience their economic boom. Once the boom starts, there will be so much more upside profit-wise than any other developed nation can offer, and you definitely want to be a part of it.

What Are The Best International Index Funds?

FTIHX – Fidelity’s Total International Index Fund

The first fund I want to introduce to you is from Fidelity. This fund uses the Morgan Stanley Capital International ACWI (All Country World Index) ex USA Investable Market Index as it’s benchmark. The fund was first incepted in 2016 and has an expense ratio of 0.06%. It has a total of $8.3 billion assets under management (AUM). The fund invests in a total of 5,074 stocks, and has no minimum initial investment requirement. This means you can start investing with $1.00!

Fidelity is the only company that does not offer their own ETF version. They paired up with iShares to offer the iShares Core MSCI Total International Stock ETF.

Below is a list of their top 10 holdings. The top 10 holdings make up 9.17% of the total portfolio.

Below is a list of their asset allocation. Developed markets refer to developed countries such as the U.K., Canada, Germany, Australia, Japan, and Switzerland. Emerging markets refer to developing countries such as China, India, Taiwan, Brazil, Saudi Arabia, and South Africa.

Below is a list of regional diversification.

A Word On FSPSX and FSGGX

Some of you may or may not have noticed two other international index funds offered by Fidelity that appear the same – these two:

1. Fidelity International Index Fund (FSPSX)
2. Fidelity Global ex US Index Fund (FSGGX)

Upon first glance, these funds appear to be identical with FTIHX. However there are subtle differences that can be a deal breaker. I have dived deep into each fund’s portfolio so you don’t have to. Here is what I found:

FSPSX – this fund invests in international equity but does not invest in emerging markets. The asset allocation is set to 100% developed markets. This was a deal breaker for me.

FSGGX – only holds 80% of the MSCI ACWI. It only invests in 2,380 stocks compared to FTIHX’s 5,074, excluding mostly small-cap stocks.

In my opinion, these two funds are inferior to FTIHX. FTIHX is the true passively-managed index fund that mirrors the MSCI ACWI that will get you full exposure to international markets.

SWISX – Schwab International Index Fund

The second fund we will take a look at is from Schwab. This fund’s benchmark is Morgan Stanley Capital International EAFE, and was first incepted in 1997 making it the oldest fund out of the three. However, with only $7.5 billion assets under management, it is also the smallest out of the three. It’s expense ratio is 0.06%, invests in 816 stocks, and has no minimum initial investment requirement.

Schwab offers an ETF versions but they are inconveniently divided into four different ETFs:

1. Foreign Large Core
2. Foreign Small/Mid Core
3. Foreign Large Value
4. Diversified Emerging Markets

Below is a list of their top 10 holdings. The top 10 holdings make up 14.59% of the total portfolio.

Below is a list of their asset allocation.

Please note that Schwab’s International Index Fund does not hold emerging markets. If you choose to invest in this fund, you will only be getting exposure to developed markets. Read until the end for my recommendation on how to solve this issue and get exposure to emerging markets.

Below is a list of country diversification, which makes up 88% of their holdings.

VTIAX – Vanguard Total International Stock Index Fund Admiral Shares

Last but definitely not least is Vanguard’s international index fund. This fund uses the FTSE Global All Cap ex US Index as its benchmark and was incepted in 2010. Its expense ratio is 0.11% and invests in a total of 7,819 stocks. This is the only fund with a minimum investment requirement of a whopping $3,000, but has $353 billion assets under management making it by far the biggest out of the three (the minimum investment only applies to the initial purchase – subsequent purchases can be as little as $1.00).

Vanguard also offers an ETF equivalent under ticker symbol VXUS. It has a slightly cheaper expense ratio at 0.07% and can be purchased at the price of one share.

Below is a list of their top 10 holdings. The top 10 holdings make up 8.83% of the total portfolio.

Below is a list of their asset allocation.

Conclusion

So, what do you do with all this information? Here is my recommendation.

Go with the company you already have an account with. All three companies have a great reputation and you will be just fine with either one.

If you have Schwab and want exposure to emerging markets, you will need to purchase one of their ETFs. If you don’t want to deal with having two different international funds to manage, you can simply purchase one of the ETFs offered by Vanguard or iShares. There is no transaction fees for ETFs. However, please note that Schwab does not offer fractional shares. You will have to pay the full price of one share.

If you have Vanguard but can’t afford to meet the minimum requirement of $3,000, you can invest in VXUS which is their ETF equivalent. Vanguard does not offer fractional shares. However, they are beginning to roll out the ability to trade fractional shares to select customers. Although, I am not sure why they don’t make it official, as many other brokerages offer fractional shares.

If you don’t have an account and are looking to open one, go with Fidelity. They have a single international fund that covers everything and no minimum initial investment requirement. They also have exceptional 24/7 customer service and other great features.

I hope the information I have provided has been helpful to you. Please feel free to leave me a comment and tell me what you think!

Still not convinced about buying international index funds? Here is an article on the reasons why you should.

What about domestic index funds? Check out this article.