Investors have more choices than ever before about what to do with their money. They can invest in stock markets in the USA, the UK, or China. They can buy cryptocurrency online or they could invest in a local business.
Many investors are now choosing to invest their money into emerging market bonds. These are investments made in countries with quickly growing economies. They can be very risky but you can see huge returns if you make the right investment. More so than you would have if you had invested in a more stable economy like the USA, the UK, or Canada.
Today, we are going to look at whether investing in emerging market bonds is something small-scale investors should be doing. How does the system work? What are the returns like? Is it too risky to invest your pension money in?
What are emerging market bonds?
Emerging market bonds are a form of investing that allows you to invest in countries with fast growing economies. The most popular emerging market countries at the moment are the BRIC countries (Brazil, Russia, India, and China).
South Korea is another popular market as it has a lot of wealthy people living there and has a strong economy. There are counties in the Middle East and Africa that are also considered emerging markets.
If you want to invest in an emerging market you have lots of options. You can invest in properties, infrastructure, governments, or businesses.
The most important thing to do when you are looking into investing in an emerging market is to do your research. Talk to someone who has already made investments out there or to a local financial expert from the country you are looking to invest in.
Do not invest without doing your research.
How are emerging market bonds different from traditional stocks and bonds?
What is a stock? A stock is a share of a business you are given in exchange for investment into the company. You are entitled to a share of the profit the company makes but you have no say in how the business is run.
What is a bond? A bond gives you all the benefits that stocks do except that you are given a say on what happens with the company. A bond comes with ownership of part of the company.
An emerging market bond is a bond that you have purchased from an overseas company. You can also buy stocks from overseas companies.
The main difference between these types of stocks and bonds is that the trading methods and trading laws may be different in the company you are buying in.
For example, the tax laws in the UK are very different from the ones that we have here in America. They do not have capital gains tax, so the profit made on stocks and bonds are taxed in a completely different way.
How you will be taxed will depend on how you buy your stocks and bonds – if you purchase them yourself then you may be taxed in both the country you buy from and the country you live in. If you pay a stock trader to buy them for you, they may be based in the country you are buying the stocks from and the tax laws will then be different.
Why are emerging market bonds so attractive to investors?
Emerging markets are attractive to investors for two main reasons (1) they allow them to diversify their portfolio and (2) they offer a large potential for return on their investment.
It is important for investors to diversify their portfolios so that one bad financial event doesn’t wipe out all of their savings and profits. Investing in multiple countries can protect you from feeling the damage of a financial crash.
These emerging markets are growing so quickly that if someone invests at the right time they could make a huge profit. However, they are also very unstable markets and there is a high risk that investors could lose money in both the short and the long term.
Are emerging investment bonds worth investing in?
Now that we know what emerging market bonds are and why so many investors see them as an atrocious investment opportunity – let’s talk about whether they are a viable option for small and single person investors.
When you are investing your paychecks and retirement funds it is important that you make thought out and educated choices. So, are these the types of investments you should be making?
Well, we should start by saying that not every country offers the same level of investment opportunities, and some countries offer safer investment opportunities than others.
The safest investment opportunities come from China. Their economy is the biggest in the world and has been growing year after year. It isn’t growing as quickly as places like India or Brazil, but their economy is a lot more stable. You are also less likely to get scammed if you invest in a company based in China.
If you are more willing to take a risk then you may want to invest in Brazilian or Indian companies. These markets are a lot riskier but there are greater opportunities for making a profit.
There are fewer regulations in both India and Brazil than in China. These regulations should exist to protect investors and buyers. Brazil in particular lacks these safeguards, so you need to be careful that you are buying from official sources.
If you are looking to invest in Chinese, Brazilian, or Indian companies, buying stock or bonds, then you should work with someone who is based in the country or a trader who is an expert in the local market.
Working with an expert can be expensive and out of the budget range of many loan investors. This is an expanding market expense that you will have to allow for if you want to trade overseas.
You should also bear in mind that you will have to do your own research if you want to buy overseas. And you will have to set aside time to keep up to date with the market and its fluctuations.
China – a stable economy, smaller risks, smaller profits
India and Brazil – less stable economies, more growth, larger profit opportunities, more risk
If you want to invest in emerging markets then you are best to have a partner based in the country and knows the market. This can be expensive to do if you are a loan investor with a small amount of capital.
How to choose how much money to invest
Before we leave you, let’s talk about how much money you should be investing into emerging market bonds or any other type of investment.
You should start by looking at how much money you can afford to invest. You should never borrow money to invest and you should never invest money that you can’t afford to lose. All forms of investment are risky and you should be prepared not to get it right every time.
For example, if you make $1500 a month after tax – you pay $900 towards your mortgage, $150 on your household bills, and $100 on food. You should not be investing any more than $200 a month. If you invested $500 at the start of the month but lost it all you would not be able to pay your bills and your mortgage.
So, say you have $200 spare at the end of every month to save or invest – how much should you be investing and how much should you be putting in an I.R.A?
Well, this will depend on how much risk you are willing to take. You can afford to take more risks the further away from retirement you are as you will have more time to make back any money you lose.
You may decide to do a 50/50 split between saving and investing in your 30s and then dial it back to a 77/25 split in your 40s, before moving to a 90/10 split in your 50s.
In summary, emerging market bonds are investments made into countries like China, Russia, India, and Brazil, that have fast expanding economies and markets. These bonds have huge potential for making their investors money.
However, as with most investments that offer big returns for smaller investments, they can be very risky. It is also worth noting that these markets can be very difficult to research from outside their own country.
These risks can be brought on by economic and political events that can sometimes seem unpredictable if you do not live in the country. If you do want to invest in an emerging market then it will be well worth your time to stay up to date on what is happening there.
However, if you feel like you can do a reasonable amount of research and are prepared to take the risk then you could see a huge reward.