New York - Aggressive and risk tolerant investors should consider investing in developing countries because of the potential for significant long-term returns.
A number of emerging capital markets we like are Brazil, Argentina, Mexico, Poland, China and Russia.
Developing country funds generally focus on a particular area or country and are an ideal way of investing in a specific area or country without exposure to one particular company. Investing in developing country funds is one of the most aggressive types of equity investments you can make. Consider the following approach when investing in developing country funds.
- Balance your Portfolio - Developing country funds should be part of a balanced portfolio. Evaluate your overall portfolio in terms of its relative level of risk, your investment objectives and exposure by industry and country. Do not forget to look at your current stocks. American companies, especially, gas and oil companies, may have significant inherent exposure to emerging markets and by investing in a developing market fund, you may take on unexpected additional risk.
- Invest on Bad News - You initial investment should be planned to be held at least five years. If you are investing for the first time, you may want to consider investing small amounts over a set period of time after a drop has already occurred. This method may diminish the possibility of immediate principal loss because of sudden bad news or a dramatic shift in the market's view of a particular country outlook. After bad news is announced, wait until the market settles and consider additional investing.
- Understand the risk - Emerging country funds generally invest in areas where there is rapid growth, privatization and economic reform and expansion of developing capital markets. Given that, there are special risks of investing in developing markets. These include higher volatility, currency fluctuation, and political uncertainty.
Given the large degree of risk, investors should only own these funds if they can hold their principal investment for long periods of time.
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