April 9, 2015
Why is it wise to own developed and developing country stock in your portfolio? Examples?
Why is it wise to own developed and developing country stock in your portfolio? Examples?
Developed and developing countries usually do not have the same returns, developed countries give you the stable average returns that you would expect in your portfilio, they are the foundation for your investments. While developing countries such as emerging markets can generate a very high return, they come with a great deal of risk, it is not unusual to have a change of %50 over a year. If you own these they can really be beneficial over the long term, you just need to make sure to hold them for a long time in a portfolio with many other balanced assets. The total stock fund at vanguard is a good example of a developed fund, while the emerging markets fund is the textbook example of a developing country fund.
Developed and developing countries are often negatively correlated. It is good to have negatively correlated holdings. Developing countries can also provide incredible returns; this is because they are often risk and can provide huge negative returns also. Holding any investments for a long time gives them much greater likelihood of coming out positive.
It is wise to own some stock in emerging markets because it helps to diversify your portfolio. By spreading your investments across a number of countries, you can minimize losses that may occur in any single market. One example of this type of investment is the emerging markets stock index fund. Funds such as this one tend to have higher returns than other index funds, but it should also be noted that they have higher levels of risk because of this.
Once again you have provided wonderful answers. I have nothing to add.