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Top 3 Reasons Investors Avoid Emerging Markets

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Many investors and advisors fail to take advantage of the opportunity to diversify offered by global and emerging markets, a new survey from The Hartford says.

The survey adds that investors don’t always understand what is involved in investing in emerging markets, nor do they grasp its importance as a tool for diversification.

While many investors who work with advisors (62%) believe such diversification is important, few actually follow through. Among those who do, many don’t understand their own global investments. The survey revealed that, when asked, more than 25% do not even know whether they hold such assets, and 57% don’t know which types of global asset classes they might hold in their portfolios.

The top three reasons, in order, given by investors for avoiding such investments were:

  1. Emerging markets are too risky: 38%
  2. I don’t understand emerging markets: 38%
  3. Developed markets are less risky: 22%

Not only are investors often poorly informed on what is in their portfolios, they often do not even understand the concept of an emerging market.

According to The Hartford, only about half can identify basic emerging market countries: Brazil (38%), Russia (20%), India (47%), China (57%) and South Africa (25%).

Some even believe that the United States (16%), Japan (14%), Canada (12%), and Spain (11%) are emerging markets. Yet 81% said they would be “very” or “somewhat” receptive to a global diversification discussion with their financial advisor.