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Economic Growth Doesn't Equal Portfolio Growth

It's all about the valuations, folks.

Christine Benz 23.12.2013

My column is dedicated to helping you avoid common investing mistakes. Well, now it's time to share a mistake of my own. One of my first mutual funds, which I purchased in 1993, was an emerging-markets fund. Tales from college friends traveling in Asia and Latin America had made me a true believer in the growth of emerging markets.

On its face, the decision to invest in emerging markets wasn't a mistake at all: Although emerging markets stocks have advanced in fits and starts during the past decade and a half, they've dramatically outpaced developed-markets firms. And had I bought and held my emerging-markets fund, I would be gloating now. But I didn't hold. When the Mexican peso crisis roiled Latin American stocks in 1994 I started getting nervous. And when the Thai baht devaluation and Long-Term Capital Management crises hit in 1997 and 1998, respectively, prompting huge losses in emerging-markets stocks in those years, I decided I didn't want a dedicated emerging-markets investment after all.

That tale of investing stupidity illustrates one of the key mistakes investors make when investing internationally. They confuse a great story--the prospect of torrid economic growth in a given market--with the actual investment.

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About Author

Christine Benz  Christine Benz is Morningstar's director of personal finance and author of 30-Minute Money Solutions: A Step-by-Step Guide to Managing Your Finances and the Morningstar Guide to Mutual Funds: 5-Star Strategies for Success. Follow Christine on Twitter: @christine_benz and on Facebook.

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