Invest In Emerging Market

Emerging market is a very important part of the assets allocation. According to wikipedia, The term emerging markets is used to describe a nation’s social, or business activity in the process of rapid industrialization. The term “rapidly growing economy” is now being used to denote emerging markets. Most of the emerging markets share the common characteristic: High Risk and High Return. The market volatility is huge. Stock price tends to go up and down sharply in a short period of time. Although the emerging market has probably the greatest risk in the stock market, it will not be wise to ignore it and not to include it in your overall portfolio.

The simplest way for individual investors to invest in the emerging market is to buy the mutual funds or ETFs that are invested in those markets.  Among all the mutual funds and ETFs, the one I like is VWO from Vanguard. VWO invests in more than 23 emerging markets, with about 45% in BRIC countries (BRAZIL, RUSSIA,INDIA,and CHINA). The MER for VWO is also very low and attractive, merely 0.25%.

When investing in emerging market, besides the MER, you should pay attention to the number of markets the fund invests in. You do not want the fund which focuses too much on small number of markets. With the huge market volatility, a sharp drop on any one of the markets will trigger considerable loss in your portfolio.  You want a fund that is as diversified as possible, but yet with a certain degree of concentration in BRIC countries. VWO seems to be a great candidate for that.

I have not added VWO to my portfolio, but plan to add it within a year. I am looking to have about 5%-10% of emerging market in my overall portfolio.

If you have questions regarding investing in emerging markets, please leave me a comment.