Now it's time to put holdings in accounts where the IRS can do the least damage to them. (more)
Special Offer
2 of 7
2. A blue-chip foreign-stock fund
First choice: Vanguard Total International Stock Index (VGTSX)

The most important reason you need to own foreign stocks has nothing to do with the fact that they've trounced U.S. equities for the past five years. Sticking only with domestic stocks is akin to shopping in a store that's missing most of its inventory: Nearly 60% of the world's stock market value resides in companies outside our borders.

Besides, since investing in stocks is all about owning a piece of a growing economic pie, you have to go to where the growth is - and 76% of the world's economic activity takes place outside the U.S.

Then there's the diversification argument. Even though foreign markets held up no better than U.S. ones in the current downturn, overseas diversification still works. Researchers at T. Rowe Price found that since 1970, a 20% weighting in foreign equities both raised a U.S. fund portfolio's return and cut its risk.

The simplest way to add stocks from both developed and emerging economies to your portfolio is to own Vanguard Total International Stock Index. As an index fund, it merely aims to match the return of the world's stock markets. Thanks to the inherent wisdom and efficiency of this approach - the fund charges a tiny 0.27% a year in expenses - it has outperformed more than 90% of its peers over the past five years.

Alternatives: Vanguard FTSE All World Ex-U.S. ETF (VEU) and Dodge & Cox Intl. Stock (DODFX )

NEXT: A small-company fund

Last updated May 15 2008: 1:29 PM ET

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.