An emerging market mutual fund is a type of international fund that invests in so-called emerging markets, such as Latin America, Africa, Southeast Asia, the Middle East, and Eastern Europe.
Emerging market funds are relatively risky for several reasons. Currency values are often volatile, making currency risk greater than with the developed nations of Europe or Asia; political problems are more likely, which can affect the economic prospects of a country and therefore the value of your investments. In addition, stock markets in emerging nations are usually less liquid because you have fewer investors looking for stocks to buy.
You can make big returns from an emerging market fund, especially if your fund’s manager is fortunate enough to pick countries or companies that are on the verge of successful business breakthroughs.
But the potential for large losses is always present. Consider investing part of your portfolio in an emerging market fund, but only a portion that you can afford to lose.
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