As an investor, you are constantly walking a thin line: How much risk is too much? How much risk is too little? That last part may seem odd. After all, how could an investment vehicle carry too little risk? Isn’t eliminating risk the goal of any serious investor?
Actually, no, it isn’t. Without risk, there is also no opportunity for that one big score, that one investment in which the initial money you sink into it suddenly skyrockets in value. Think of those first few investors in Google. They hit the big score. It’s the dream of every serious investor. And investment vehicles with extremely low amounts of risk will never provide this big payday.
This brings us to a class of investment vehicles that are suddenly becoming rather trendy: overseas development markets funds. As their name suggests, these funds are made up of bundles of developing markets from around the globe. Each of these funds is different, but they all have one thing in common: The securities wrapped up in them are exotic to the average investor. They’re exciting.
And, yes, they’re quite risky.
It’s difficult enough for U.S. investors to predict how even the best mutual funds, stocks and other investment vehicles will perform in their own country. It’s even more of a challenge for them to deduce how overseas developing markets funds will perform. After all, most investors in these vehicles will no little to nothing about these overseas markets.
Does that automatically make overseas developing markets funds a bad risk? Does it automatically make them an investment vehicle that you should avoid? The answer to both questions is a strong “not necessarily.”
If you are aware of the risk, investing some money in these funds might be a sound financial strategy. Because not only are these funds risky, but they also hold vast amounts of promise, too. No one knows quite how these developing markets will perform in the future. They may boom, or they may bust. If they boom, though, and you’re one of the early investors in them, you stand to make a lot of money.
It might be healthiest to consider these investments as the Las Vegas of the financial world. Only play as much money as you’re comfortable losing. Then if you actually win, if you somehow pick a winning investment vehicle, it’s a bit like playing with house money.
Related posts: