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I currently invest in a handful of index funds that includes U.S. equities, U.K. equities, some emerging markets, and some Asian equities.

But I have in mind that the West is eyeball deep in debt, and I am second-guessing my current asset allocation.

What risks are there in focusing my investment portfolio on Asia/Emerging markets funds instead? (Maybe even China?)

Aside from the possibility that I'm wrong about how equities in the West would perform given the debt levels that concern me, what else is wrong with focusing on less developed markets? What am I missing?

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what else is wrong with focusing on less developed markets exclusively?

Less developed markets are risky, because they're volatile and prone to high inflation.

That means you can lose a lot of money.

What am I missing?

  1. The debt burden isn't as bad as you think it is.
  2. If the developed Western economies crash, everyone else's will too.
  • @ChrisW.Rea I reverted your edit because I was quoting the question as it was at the time of my answer. – RonJohn Sep 4 '19 at 22:27
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    Indeed, if the West goes south I'd be more worried about looting/starving than the optimal allocation of my portfolio. – Jared Smith Sep 5 '19 at 2:27
  • I'm not sure if I agree that if the West goes south everyone else does. I think Chine would be better off selling even more cheap products to the western countries ? – matewilk Sep 11 '19 at 9:39
  • @matewilk if Western economies go into depression, then demand will dry up, from the very fact that there's just not enough money to buy stuff. – RonJohn Sep 11 '19 at 12:36
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This depends how you define risk. In the sense your portfolio will be substantially less diverse and likely more volatile, this is indeed more risky.

What you suggest is a form of timing the market, by weighing more heavily into sectors you consider undervalued and less into those you see as overvalued at the time. Then readjusting later based on what happens.

Many people here say you should never try to do this as statistically this is difficult and most fail to do well this way but honestly if you are able and willing to lose the money if things go wrong you can certainly try your strategy. Remember, volatility is required for both gains and losses.

  • "volatility is required for both gains and losses" - Can you clarify what you mean by this? – Nosjack Sep 4 '19 at 18:28
  • @Nosjack Volatility implies a product's value historically makes big swings. This includes both up and down swings. If a product is considered volatile because it constantly swings up and massively outperforms the market this can be a good thing. Or it could mean the product often has huge losses. – Vality Sep 4 '19 at 19:54

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