In investing, the terms global and international are not interchangeable. Even though both types of funds invest in stocks from more than one country, there are differences that are important for mutual fund investors to understand, so that they insure that their portfolios are properly diversified.
Global funds consist of stocks from many different countries -- including the investor's own country. International funds also consist of stocks from different countries. But, by definition, they do not include companies based in the investor's home country.
Within these 2 broad categories, funds can be further classified according to market sector or industry. Thus, for example, there could be a global health fund, international durable goods fund, etc.
Global funds can be the right choice for investors who are just starting to build their portfolios, and do not have a lot of money to split up among many funds. By investing in a global fund, they can invest simultaneously in both the largest companies in their home country, as well as diversify in other countries.
On the other hand, an investor who already has a portfolio invested heavily in domestic stocks -- and wishes to diversify geographically -- will probably want to look at international funds. This is especially true for Americans, because U.S. multinational companies tend to have large market caps and have a heavy weighting in U.S. global funds.
It is important for investors to choose at least one of these funds, because some exposure to international securities is essential in today's globally connected economy. Individual parts of the world are vulnerable to slumps in their home economies, and capital is always shifting, seeking to move operations to low-cost countries, and tap world-wide pools of talent.
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