How Have Emerging Market Equities Performed?

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Last Tuesday I was on the radio and someone called in challenging the picks for my 2012 gone-fishing portfolio. Specifically she claimed that Vanguard Emerging Market ETF (VWO) had done nothing but go down in value. Here are the annual returns for VWO and iShares Emerging Markets ETF (EEM) which we used before VWO became available:

2004 24.61%
2005 32.57%
2006 31.37% 29.16%
2007 33.19% 37.32%
2008 -48.88% -52.30%
2009 68.81% 75.30%
2010 16.54% 19.44%
2011 -18.84% -18.73%
04-2012 11.27% 11.37%

Those returns are exactly what I would expect from emerging markets. High volatility and wild returns. As a result, emerging market equities should be rebalanced regularly. High volatility and low correlation produce a large rebalancing bonus.

Burton Malkiel recently picked emerging market equities as having the best prospects.

If you would like to know how much emerging markets you might want to put in your portfolio, check out our 2012 Gone-Fishing Portfolio Calculator.

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David John Marotta is the Founder and President of Marotta Wealth Management. He played for the State Department chess team at age 11, graduated from Stanford, taught Computer and Information Science, and still loves math and strategy games. In addition to his financial writing, David is a co-author of The Haunting of Bob Cratchit.