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Tackle Today: What are Emerging Markets?

January 23, 2023

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«Let’s go abroad»

Traders,

One way to diversify is by region or country. When you look at the practices of institutions and stewards of pooled capital you notice a few recurring themes. Those who build portfolios with global diversification put money in the U.S. and abroad. The U.S. usually commands the largest chunk because it accounts for a larger percentage of global GDP than any other country.

When investing internationally you’ll see two primary groups: foreign developed and emerging markets. The first consists of countries that look more like the U.S. They have a higher standard of living and boast similar growth patterns. The EAFE Index is the most common vehicle used to track the performance of companies in these countries. It stands for Europe, Australasia, Far East. There are dozens of ETFs that track the EAFE Index or its equivalent including EFA and VEA.

Emerging Markets include countries with a lower standard of living that have the potential for higher growth. Once upon a time they were called the BRIC countries and include such giants as Brazil, Russia, India, and China. You can use ETFs like EEM, VWO, or IEMG to trade and track these guys.

One benefit to tracking areas outside the U.S. is you get a global, more comprehensive view to your analysis.

Another perk is you get more trade ideas. Sometimes EFA and EEM move to the beat of their own drum and offer up patterns that aren’t available from the likes of SPY and IWM.


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