Should I Invest in Emerging Markets?

June 29, 2023

In this discussion, we're tackling a common question: "Is it a good idea to invest in emerging markets?" To make an informed choice, let's look at some historical data for perspective.

Recent history reminds us that diversifying your investments is crucial. Assets don't follow a steady path; they go up and down. Some may stay stable for a while, then suddenly surge, while others may take years to show any significant movement. This is why diversification is essential.

Let's take a look at a chart comparing the performance of US, developed, and emerging markets from 2002 to 2021. In the first ten years, emerging markets performed the best, growing by 13.8%, while the US market only grew by 3%. In the following decade, the US market outperformed, growing by 16.3%, while emerging markets grew at 5.7%. This back-and-forth pattern underscores the importance of owning assets that behave differently over time.

The key lesson here is that while we can't predict the future, diversifying your investments helps manage risk and optimize returns in the long run. For more helpful financial resources and insights, check out our YouTube channel. We're here to assist you in achieving your financial goals.


Full Transcript:

Hello, welcome to Arista Advice! Question of the week is: "Paul, should I invest in emerging markets?" Great question. Let me share with you some data and some historical numbers to put some things in perspective. A few clients have asked, and we wanted to share this with you.

Recent history has reminded us that you need to always stay diversified. Assets go up and assets go down. Assets for some will not move much, and then they will pop in a short time period - two weeks, three weeks, four weeks, and then they won't pop for another four, five, six years. That's why you need to be fully diversified.

I'm going to share with you this chart about the emerging markets, the international markets, and the US markets. As you'll see here, from January 2002 to December 2011, the US market only grew three. The developed market grew 5.8% and the emerging markets grew 13.8%. Thus, the emerging markets did the best. Going from 2012 to 2021. What do you see here? The US markets did the best from 16.3%, the developed markets did 8.1% and the emerging markets did 5.7%. So when one zigged, one zagged in the first ten years. The next ten years, the one that zigged zagged, and the one that zagged zigged. But you put it together for the last 20 years, and they are neck and neck. 

So it's always important to own assets that are uncorrelated and are doing different things at different times. As you can see from this chart, you can never forecast nor predict the future, but you always need to stay diversified. 

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