Investors should consider a well-diversified global strategy

Last month, I posted a blog about the importance of owning emerging markets in your portfolio. This blog post is a continuation of that discussion and includes a pop quiz. Please take a few minutes to watch the video below by Joel Hefner, a VP with Dimensional Fund Advisors.

Check your answers below.

Economics pop quiz:

(1) What term is used for developing countries with slower economies than “emerging markets?”
(2) What are the four largest emerging economies in the world today? Hint: BRIC.
(3) Which global market is under review and may be added to the MSCI Emerging Markets Index soon?
(4) Which country in the MSCI Emerging Markets Index has about the same market value as Lowe’s ($70B as of December 2015)?
(5) Can you predict a market’s performance based on the previous year’s history?
(6) If you had $1MM to invest in emerging markets in 1996, which country would you pick?

Answers:

(1) Frontier markets
(2) Brazil, Russia, India, China
(3) Pakistan
(4) Turkey
(5) No. As Joel Hefner illustrates in the video above, a long-term and diversified perspective on returns in the equity and bond markets is a winning strategy for portfolio growth.
(6) Did you pick China? A good choice. Your $1MM would have turned into $1.84MM in 20 years. But if you had picked Egypt in 1996, your $1MM would have grown to over $12MM in 20 years.
Joel Hefner concludes, “The point is that these returns are random. There is no pattern that is reliably predictable. By sticking with a well diversified strategy, this can help increase the chance of a growing portfolio over the long term.”


About Christopher Jones

Christopher Jones is the Founder and President of Sparrow Wealth Management, a fee-only financial planning and investment management firm. Before entering the investment field, Chris was a management consultant for Deloitte Monitor. He graduated summa cum laude from Brigham Young University with a B.S. in Economics and a minor in Business Management.

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