Emerging Market Funds: Great Potential If You Can Swallow the Risk

Over the last few years, the emerging market fund has become a more common investment. This type of fund focuses on areas of the world that could be considered emerging markets. Here are the basics of the emerging market fund and why it could be a good investment for you.

What Are Emerging Markets?

In order to understand this type of mutual fund, you first need to have some understanding of what an emerging market is. This is a title given to a geographic area that as of yet is underdeveloped. Emerging markets are in areas that do not have good infrastructure or commerce at this time. However, they have experienced recent advancements and are expected to see more and more growth. There have been many cases of amazing growth in emerging markets. Therefore, this could be a very good time to invest in those regions.

Currently, some of the regions that make up many of the emerging market funds are Asia, Eastern Europe, Latin America, the Far East, Africa, and the Middle East. All of these regions have countries within them that are poised to go through some serious economic growth over the next decade.

How They Work

Emerging market funds will start out by doing a thorough amount of research. They will try to identify individual countries that have good growth potential for the immediate future. When a country is identified, the mutual fund will begin to research companies that they could potentially buy stock from in that country. Once they locate companies that appear sound, they will start to invest in them. Many times, this funding can help the individual companies get started.

The mutual fund will still strive to provide a very diversified portfolio for its investors. However, it will be diversified over a particular country or region.

What They Offer

The main objective of investing in this type of fund is growth. Investing in emerging markets has vast potential when it comes to growing an investment portfolio. If the country succeeds, the growth percentage will be much higher than other types of investments. This is perfect for investors that want to diversify their holdings outside of the country. If you are invested in a successful emerging market fund, you will not be hurt as much if your domestic stock market goes through a rough period.

Risk

The main problem with this type of fund is that you have to have a high risk tolerance. While some emerging market funds do work out wonderfully, many others tank. You could potentially lose a lot of your investment with this type of fund. Therefore, it is not for those that cannot handle risk.

Investment Considerations

If you have the proper risk tolerance, investing in emerging market funds should definitely be a consideration for you. Many investors should consider devoting a greater percentage of their portfolios to investments in emerging markets because of the vast opportunities they represent.

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