Kevin S asked:
I don’t want to get ahead of myself, but these mutual funds appear very high-yielding, even over lengthy periods, and make American stocks and funds appear nearly pointless in comparison. I don’t mind the risk involved, and would likely purchase shares of a diversified fund or several various regional funds. What do you think of these funds, and is there anything else I should be aware of?
China is not a communist economy. It’s free enterprise.
January 28th, 2010 at 2:18 pm
Everyone’s portfolio should have some exposure to such international stocks – either thru a combination of domestic and international stock funds or a “global” stock fund that includes both. Most target retirement date funds contain an international component. Its a matter of first determining the asset allocation that you want.
January 28th, 2010 at 3:20 pm
International Exposure: Yes
Emergeing Markets: NO
If you have a long time to invest, I would be putting 10-15% of my new money into developed country funds. China is a sucker bet. It has had huge returns the last few years, but if you bought late last year, you would have lost your shirt, and I don’t think the blood letting is over. Don’t walk, run away from Emerging Markets. Oh sure, they could bounce back, but it is equally likely that they will loose another 50%. Keep in mind that China is still up 200% from where it traded in 2005. And it’s a comunist country.
Anyway, this shoudl be a very small portion of your portfolio.
January 29th, 2010 at 2:53 am
I guess the answer depends on what you mean by “extremely high-yielding” and “over long periods”. Emerging markets have had a tremendous run in the last few years, but over longer time periods they don’t look quite as attractive.
Take Vanguard’s Emerging Markets index fund (VEIEX) as a typical example. Its five year performance is an exemplary 34.70%, while its ten year performance is a still good 12.96%. Since its inception on 05/04/1994, however, it has an average annual return of only 10.15%, which is extremely ordinary for a fund that invests entirely in stocks.
I would say that these numbers are indicative of an extremely hot investment that has been producing returns that are unsustainable in the long term. Still, a 10+% average annual return is certainly acceptable over a decade and a half. So if that’s your criteria for “extremely high-yielding” over a decade and a half time frame, I’d say that emerging markets are a reasonable long term investment.
January 31st, 2010 at 5:26 pm
Historically, you are absolutely correct. Their returns have been outstanding, especially developing market funds. Now, whether that will be true in the future remains to be seen.
Here is my hypothesis. Developing countries are almost assured to grow much faster than the developed countries. They have a lot of catching up to do. But certainly investments in developing countries have a great deal of risk. If there is the possibility of a 25% annual return, some risk is warranted. Heck the risk may actually be less than investing in the U S and the return greater, after all your investments are no longer dollar denominated.