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Despite economic and geopolitical upheaval from Brexit to the Syrian civil war to provocations by North Korea, investing experts say it would be a mistake to bail out of international and emerging markets. In fact, some say these assets are actually a better value right now than the high-flying American stock market.
“Right now, the international and emerging markets valuation — the price of the stocks — is much lower than the stock prices in America. So it’s a buying opportunity,” said Stephen Ng, owner of an eponymous financial advisory firm and author of 10 Financial Mistakes You Should Avoid: Strategies Designed to Help Keep Your Money Safe and Growing.
“Although emerging markets are more volatile in terms of day to day swings, Europe and emerging markets are significantly underperforming the U.S. markets,” said David Frisch, owner of Frisch Financial Group, Inc. “Just because of how much they’ve underperformed, I would not necessarily run away from these,” he said.
“Specifically to emerging markets, the geopolitical risks are always there,” said Steven Elwell, partner and vice president at Level Financial Advisors. “Those risks are always there and those risks are, in an efficient stock market, priced into the risk you’re taking and the returns you should receive.”
Diversification Still the Best Rule
Pros say they’re not fazed by the prospect of volatility, and neither should average investors.
“Our feeling is you’re going to have something at all times in your portfolio that’s just not doing well,” said Scott Cole, founder and principal of Cole Financial Planning and Wealth Management.
“When we get nervous is when everything’s going up,” he said — because that means it’s only a matter of time before something turns negative, and it can be harder to pinpoint that and respond on the fly than to manage expected underperformance.
“What we always try to educate retail investors on is the power of diversification,” Sameer Samana, global quantitative strategist at the Wells Fargo Investment Institute. ”It’s really hard to predict which region of the world will outperform or underperform.”
Since even overexposure to U.S. equities can be risky, international stocks in a portfolio can provide a counterbalancing force to a domestic dip.
“Approximately half of the world’s stocks available to invest in are outside the United States,” Elwell said. “To categorically say, ‘I’m not going to invest there’ — you’re taking an enormous piece of the overall universe off the table.”
Don't Gamble with Your Retirement
Above all, don’t try to time the market. “The average investor is notorious for getting the timing wrong,” Elwell told NBC News.
Especially if your retirement nest egg is riding on the line, it’s just not worth the risk.
“You might think you have geopolitics figured out — you think the market’s going to zig, and then it zags on you,” Samana said, pointing to recent events like Britain’s voting to leave the European Union and the U.S. presidential election. In both cases, the market priced in an expectation that was the opposite of what actually happened.
“What usually happens with any major negative event is the market falls very quickly very hard and it tends to recover,” Frisch said. “There’s frequently significant reactions, and usually overreactions, followed by a recovery over some period of time.”
This means bailing out when a sector is at a trough is a mistake, since it deprives your portfolio of the opportunity to make back those losses — and perhaps then some — when the pendulum swings the other way.
“Logically, we know one thing cannot outperform everything else,” Elwell said. “You might as well stick around for the somewhat eventuality of their outperforming.”