- EEM and VWO go against each other in key areas,
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The total U.S. stock market has gained over 20% during the past year and is doing great. But for U.S. investors that are under-weighted to foreign stocks, it’s not so great. Why? Because foreign stocks have convincingly outperformed U.S. equities, thereby causing a performance deficit. What’s the problem?
The tendency of investors to concentrate and tilt their stock and bond holdings toward their home country is referred to as “home-bias investing.”
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Diversifying your investment portfolio: It’s a dull exercise that people repeatedly hear, yet a chore they execute with consistent imprecision. Are there times when diversification can actually become “Di-Worsification”?
Variety is the Secret
Diversification boils down to spreading your investment risk across multiple asset classes.
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Money is flowing out of risky emerging market stocks (NYSEARCA:VWO), and guess where it’s going? Into even riskier frontier market debt and stocks (NasdaqGIDS:PMNA).
The Economist reports:
“Investors in America and Europe were hungry to buy dollar-denominated debt offering juicy yields. Zambia drew $12 billion of orders for a ten-year bond paying only 5.4%.
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