April 6, 2010

Emerging Markets and Overseas Investing

I am asked on occasion about investing in emerging markets.  While it is tempting to invest in markets such as China, India, Brazil, Korea, Russia, etc, it is also quite risky. 

Risks inherent to investing in companies in countries outside the US include;
  • less stringent reporting requirements
  • currency fluctuations
  • government regulation and policy changes
I tell people that when you invest in a broad based US index fund, you are already getting some international and emerging market exposure since the companies within such as Caterpillar, IBM, McDonald's, Exxon & GE are already investing in those countries.

In my opinion, the reward does not outweigh the risk and besides that, the fees within mutual funds or etf's that deal in emerging markets and overseas markets are quite high and if you have been following this blog for any amount of time, then you already know what I think of fees.  Arrghh.

Stick to a domestic index fund, keep your fees super low and emotions in check and you are doing about all you can.  With that simple strategy, you will beat 90% of the people including investment professionals.

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