The Most Important Investing Pop Quiz You Will Ever Answer

What do all of these brands have in common?

- Budweiser
- Lysol
- Ben and Jerry’s ice cream
- 7-Eleven
- Gerber baby food
- Brook Brothers
- American Idol
- Motel 6
- Wild Turkey bourbon

If you answered, “They are owned by non-U.S. companies”, you got it!

Today, the United States holds just 30% of world stock market capitalization. This means, if you are not investing outside the U.S., you are missing 70% of the opportunities.

But, how do you decide where else to invest? It’s simple. Look at GDP growth rates.

Why? Because long-term, stock prices are connected to GDP. When an economy flourishes, its stock prices follow close by.

Take Japan, for example.

Since the 50’s and until the 80’s Japan was considered an emerging market. During this time, Japan’s GDP grew an average of 7.4% per year and its stock market returns were shocking.

The Japanese market had a 70-fold increase in value!

Most definitely, the saying that goes: “When the U.S. sneezes, the rest of the world catches a cold” is history now.

Growth today is in the emerging economies, which represent around 30% of the world’s GDP with 87% of the world’s population. YES! 87%!

If you don’t believe it, just take a close look at the GDP forecast for these countries:

- Singapore 14.5%
- China 9.6%
- India 8.2%
- Thailand 8%
- Brazil 7.2%
- Russia 4.5%
- United States 2.7%
- Europe 1%

Emerging market economies are growing so fast in part because of their rising middle class. When per-capita income increases, spending intensifies; this creates earnings growth, which transforms into higher stock prices.

Today, you MUST invest in emerging markets, and it is fairly easy to get exposed to them.

The easiest way may be with an exchange-traded fund (ETF), but you can also consider the Vanguard Emerging Markets ETF (VWO), which has a low expense ratio, 0.27%, against the category average, 0.70%.

However, if you still feel very much attached to U.S. soil, there’s a way in which you can indirectly profit from developing nations’ growth: invest in U.S. companies with ample exposure to emerging markets!

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