Diversification is the key to successful investing, and your portfolio must contain an age appropriate mix of low and high risk investment tools to both grow and preserve your wealth. All investments carry the risk of loss, but emerging markets may be especially volatile.
You can successfully diversify using emerging market ETFs and mutual funds but remember that emerging markets are considered high-risk and high-return due to the fact that you are investing in the corporations in countries that are in an intermediate stage of development.
You should always research every potential investment prior to committing any funds. You can research emerging market ETFs and mutual funds online at discount broker ETrade. By being able to screen ETFs and mutual funds based on your individual criteria you can better find the fund or ETF that is right for you.
Emerging Market ETFs And Mutual Funds
It is not necessarily true that because a country is growing at a record pace, a stock’s price will rise. When companies grow after-tax profits shareholders benefit. There may also be outside influences on the stock’s price such as wars and violence, corruption, high taxes, and various other risks. These elements contribute to making their stock prices extremely volatile.
It has only been until recently that only wealthy institutional investors had access to asset classes. If there was an alternative available, a retail investor could end up paying up to 10 times more in fees than larger investors.
When comparing emerging market ETFs and mutual funds it is important to keep in mind that for many investors ETFs have been the superior low-cost option for gaining exposure to emerging markets. By investing in an emerging market ETF you do not have to worry about daily changes to global politics, etc. You can have a professional trade, rebalance, and maintain a basket of stocks for you.
There are even options for you to invest in a specific country’s ETF or mutual fund, which is the equivalent of purchasing the S&P 500 for these countries. You may use the majority of your emerging market funds allocation for a broad emerging market ETF or mutual fund, and then also allot 5% each to two specific countries.
Always consult with a professional financial adviser, such as the trained investment specialists at industry leader ETrade. Your asset allocation will vary considerable depending on a variety of factors including your age, time-frame for investing and risk-tolerance.
Investing In Emerging Market ETFs And Mutual Funds For Diversification
By investing in emerging markets ETFs and mutual funds you can help to diversify your stock holdings. As emerging markets tend to rise when the United States and Europe’s growth stocks fall. By owning these types of investments you can effectively even out the ups and downs of the US stock positions in your portfolio.
You should allocate no more that 10% of your portfolio to emerging market investment instruments as these stocks can swing wildly with internal problems within the country. Make sure you know what your emerging market investments consist of to avoid overweighting any particular sector.
You can screen thousands of funds with online broker ETrade, to find the investment option that is right for you.
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