What to Keep in Mind When Getting Involved with New Markets
The average investor does not need to invest in emerging markets. In fact, they probably do not even have enough money to invest in these markets. You should also know that there are some diversified international funds that already invest a portion of your money in emerging-markets funds for you. Therefore, your portfolio could be overweighted by adding a separate emerging markets fund.
If you are still intrigued in investing in these emerging markets funds, then there are a few guidelines that you should follow. These include:
- You need to stay diversified.
- If you are going to invest in an emerging market then you really should have as much knowledge and insight into this stock market as someone who is living in this country does. This is very important because a single country’s stock market can produce losses that would take you decades to recuperate from.
- Only invest small amounts in these markets. The most you should invest is just 4% of your overall portfolio. This includes money market funds and bonds too. Even those who are ready to take a bet should not invest more than 5% in these markets.
- You need to hold your fund for the long-term and add to it whenever it is down sharply. This is how you will get the most benefit and the biggest gains.
So if you feel that you have to play with emerging markets, you need to be sure that you do so in only small amounts. Remember, whenever you have craters in your portfolio, they are really difficult to fill back up.
