With changing geo political landscape (dollar alternative, rise of China etc), what should be the right allocation in percentage terms of emerging markets? Invest mainly in passive index funds and have time horizon off 18-25 years.
Well, nobody knows. That can only be derived by looking backwards in time.
The only unbiased approach is to weigh each country by its ‘market cap’/relative size of their economy to the world economy.
Not advice (DYOR etc) but in my index tracker portfolio, the EM allocation I aim for is 5%.
This is the allocation I am comfortable with and which I came up with after reading this old blog post 9 lazy portfolios for UK investors - Monevator, followed by Tim Hale’s ‘Smarter Investing’ book.
The allocation isn’t rigid, it’s evolved a little over the years (eg the bond allocation I had is a lot smaller).
As @SebReitz says, no one knows what the right allocation is, you just have to choose the right one for yourself - the one you are most comfortable with.
True. I agree there is no right answer. But I increasingly wonder if ( big if) USD stops being the reserved currency, how will it affect most world index funds which are massively weighed towards US. 20 years is a long time and it won’t be a surprise if US is not the only economic super power by that time. I just wanted to get an idea about what others think in their opinion is the right percentage. Mine at present is around 12%