Most investors need to have some exposure to emerging markets stocks as such markets have characteristics that make them prudent for a balanced portfolio. But what’s the right emerging market portfolio allocation? USA Today’s markets reporter Matt Krantz recently answered a question about what the right exposure to emerging market stocks should be by saying:
The IFA Emerging Markets index has generated an average annual compound return of 12.8% over the very long term. That’s an outstanding return compared with the 9.8% average annual return of the Standard & Poor’s 500 and 4.9% return of 5-year global bonds, says money-management firm Index Fund Advisors. But emerging markets’ stock gains come with risk that’s much larger than that of most asset classes. Rather than scaring you away from emerging markets, put the volatility to work for you. Over time, emerging markets stocks tend to zig a bit when U.S. markets zag. If you’re the absolutely most risk-tolerant investor out there, IFA recommends you keep your emerging markets exposure to 9%. Even if you’re the most risk adverse, you’ll want some emerging markets, but only about 1% of your portfolio, IFA says.
To read the whole article, Ask Matt: How much emerging markets you need, go to the website of USA Today.
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