An emerging market fund is a fund that holds the majority of its assets in securities in countries whose markets are considered to be emerging. Both mutual funds and exchange-traded funds (ETFs) invest in emerging market stocks.
As an investor, you may be wondering whether investing in a mutual fund or ETF that is active in emerging markets is right for you. Before making a decision, you should consider the pros and cons.
Emerging market stocks pros
- Opportunity to capitalize in international growth — Brands and organizations on the path of success in foreign markets may be great investment opportunities. An emerging market mutual fund or ETF provides you with access to these markets, which helps you seize more investment opportunities and diversify your portfolio.
- Reduced risk— Investing outside of more mature economies can help to reduce risk even though emerging markets are generally more volatile.
- Profit from exchange rate — The U.S. dollar may have more power than a foreign currency, which can make your earnings in foreign markets more profitable back home.
Emerging market stocks cons
- Political risks — It is hard enough to keep up with domestic politics, let alone international politics. The government of a country with an emerging market can change laws and policies in a way that negatively impacts your investments.
- Exchange rate risks — While some foreign investments help grow your wealth in U.S. dollars, others can cause you to gain less due to the conversion rates. Financial professionals who manage emerging market mutual funds monitor exchange rate risks and try to make the best decisions, but major events or news can cause the currency to shift unexpectedly.
- Accounting risk — Because the accounting principles in foreign countries may not be as discipline and transparent ast they are in the US, this adds additional risk.
Talk to a ProVise CFP® professional about investing in emerging markets
At ProVise Management Group, our CERTIFIED FINANCIAL PLANNER™ professionals can get to know you and your current financial circumstances, goals, risk tolerance and personal values to help you develop a plan that works for you. We can also create a written plan for you at a fiduciary standard of care. All our written plans come with an unconditional money-back guarantee. If you are unhappy with your written plan, you can return it to us, and we will refund 100% of the fee paid.
Are you ready to talk to a professional about investing in emerging markets? Contact ProVise today to schedule a complimentary consultation.