What does a Florida trustee need to know about prudent investing and international investments?
Should Florida Trustees Invest Internationally?
- Every Florida trust lawyer knows that the prudent investor rule does not prohibit you from investing internationally
- In fact, the Florida prudent investor rule also does not require you to invest overseas
- But if you are the trustee of a Florida trust, you may want to consider how international investments can be just one part of your trust investment portfolio
- Why? Well, diversification is one point, right? Why put all your investment eggs in one basket like the US stock market?
- What’s important is that you have a plan, an investment strategy, which complies with the Florida prudent investor rule.
- Most Florida trust lawyers will tell you that having some trust investments overseas makes sense
- Most financial advisors, for what it’s worth, will tell you that 5-20% of your trust portfolio should have an international component
- But that can be tricky. After all, there are many US companies which do business and derive revenues from outside the US
- There are international index funds with lower costs than actively managed funds at places like Vanguard. www.vanguard.com. These give you exposure to broad, general markets. You can usually choose international index funds by market capitalization: small cap, mid cap, large cap. Some funds break it down further: international small cap growth, for example.
- Two actively managed mutual funds which are two of my favorites are the Oakmark Select International Fund and the Dodge & Cox International Fund
- A Florida trust can also invest in stock markets for particular regions and countries. Think Europe’s gains over the last 6 years will continue? Is Spain finally coming back? Like Germany and France? You can get your trust portfolio exposure to those regions and markets.
- But should you consider emerging market funds? Or frontier funds? These can give you exposure to far off lands and high growth potential economies, but the excitement can come with a wild ride. And watch out: frontier funds, which have been described as the smaller or more emerging, emerging markets, can change. One of the recent indexes is removing some stocks/countries from its frontier index and “graduating” them to the emerging markets index. Do you understand the difference between Brazil and Botswana , Nigeria and Nicaragua and why you may want to invest in Turkey right now? Maybe these are topics to discuss with your Florida trust lawyer the next time you review the trust and its administration and investments.