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Balancing Growth and Risk of Emerging Markets in a
401(K)
MOST
401(K) INVESTORS
want
growth. Lots of it. But how can you help them get it,
while addressing risk? One way is to look for managed
portfolios that include a component of emerging markets.
Just make sure that these portfolios keep risk in line
with investors’ goals.
Why
emerging markets? For starters, these economies have
been outpacing those of developed countries recently.
Other benefits for 401(K)s include:
▪
Improved portfolio diversification – because many emerging markets companies conduct
business largely in their local markets, they are often
less affected by the U.S. economy than global companies
are.
▪
Low
correlations – historically, emerging market
equities have exhibited low correlations to U.S.
equities. Adding emerging markets to a portfolio may
help reduce risk as poor performance in one asset class
can be offset by strong performance in another.
Of course, the
ups and downs of emerging markets may not be for
everyone. Foreign securities involve special risks,
including potentially unfavorable currency exchange
rates, limited government regulation (including less
stringent investor protection and disclosure standards)
and exposure to possible economic, political and social
instability. A fund investing in emerging market
countries has an increased exposure to foreign
securities risk. While 401(K)
investors should carefully limit their allocations,
many market analysts agree this asset class
belongs in many portfolios.
While
diversification does not guarantee a return nor assure
against loss, investing in funds that provide for
professionally managed diversification amongst various
asset classes including emerging markets, is one simple
way an investor could balance the growth potential with
the risks inherent in emerging markets investing.
One
thing is clear: today’s investors need to think
globally. A fund-of-funds can offer your plan members
exposure to today’s high-growth areas, while spreading
risk through diversification.
For
more information, please contact Brian Dillon,
Investment-Only Specialist at 800 846-0457.
©2007 John Hancock Life Insurance Company (U.S.A.), a
Manulife Financial company. All rights reserved.
I
13044 (06/07 – 13044)
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