Emerging Markets vs. S&P 500

The S&P 500 and the MSCI Emerging Market Index have very different results over the last 5 years. During that time, the S&P 500 produced positive returns every year, while the MSCI Emerging Markets Index was only positive in one year. So with this information, why would anyone choose to place their money in an emerging market index?

The answer comes from history.  Over the last 28 years, the MSCI Emerging Markets Index actually performed better than the S&P 500, and would have actually made you a better return. When looking over that 28-year period, the MSCI Emerging Markets Index had negative annual returns in 13 years. During that same time period, the S&P 500 only had 5 years with negative annual returns. However, over that time period, the S&P 500 compounded at a rate of 10.3%, while the Emerging Markets Index compounded at a rate of 10.5%.

One of the most difficult parts about investing in emerging funds is to stick with it. It is hard to look at a fund that is producing negative returns over several years and continue to hold on. However, by keeping the fund for a long period of time, you are more likely to receive the benefits that come with riskier investments.

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Past performance is no guarantee of future results.