Growth is booming everywhere around the globe, but just not here at home. Investors are trying to get in on emerging market exchange traded funds (ETFs) to capitalize on the rapid growth overseas, but Jack Bogle, founder of Vanguard, doesn’t buy into it.
In an interview with Christine Benz for Morningstar, Jack Bogle remarked that people are stuck in a “Rowboat Syndrome” where investors are using what was good yesterday as a basis for investing today.
Though the logic for investing in emerging markets is there, international and emerging markets will likely perform the same as the United States in the next decade, says Bogle. Bogle names issues such as unforeseen risks, currency risks, sovereign risks and more that could equalize the markets.
Bogle suggests investors limit international holdings to 20% of a portfolio, with around half in emerging markets and half in developed markets.
International assets and ETFs are a good way to diversify a portfolio. The goal is to hold assets that are uncorrelated with each other, which helps reduce overall portfolio risk. By investing globally, if one area seems some low growth, another area might make up the difference with high growth.
While Bogle’s points are well-taken, the trend for emerging markets is in place and you can’t fight it. Risk can be better managed by having an exit strategy in place to help you get out of a fund if it declines below its sell point. [Following the Trends.]
For more information on global investment opportunities, visit our global ETFs category.
Max Chen contributed to this article.