Rethinking Emerging Markets: Why Now Could Be Your Time to Shine! 🌟

Hey friends!

I want to be honest—until recently, I hadn’t included emerging markets in my investment portfolio. Historically, they have been volatile and, over certain periods, have underperformed developed markets. After crunching recent numbers and tuning into the latest market trends and forecasts from experts like Goldman Sachs and S&P Global, I’m rethinking that approach. Maybe it’s something worth considering for your own portfolio too!

Disclaimer:

Just a quick reminder, this is for educational fun and not specific financial advice. Investing has risks, including losing money. Always chat with your financial pro before making moves!

Why Now? Some Numbers That Got Me Thinking 🤔

• The US Dollar Index has softened by about 8.5% so far this year. A weaker dollar typically helps emerging markets because it lowers the cost of their dollar-denominated debt and can boost their earnings. (Source: MarketWatch, 10/13/25)
• The iShares MSCI Emerging Markets ETF (EEM) is up around 25.4% year-to-date, significantly outperforming the S&P 500, which has gained about 12.5% in the same period. (Source: iShares EEM on Yahoo Finance, 10/13/25)
• Vanguard’s Total Stock Market ETF (VTI) is performing similarly to the S&P 500, with an approximate gain of 12.1% year-to-date. (Source: Vanguard VTI on Yahoo Finance, 10/13/25)
• Even bonds, measured by the Bloomberg US Aggregate Bond Index, are up about 6.7% year-to-date. Solid returns, but not nearly as flashy as emerging markets! (Source: iShares AGG on Yahoo Finance, 10/13/25)

What's more, experts from Goldman Sachs Research, S&P Global, and JP Morgan Asset Management share several reasons for optimism about emerging markets in 2025:

• Emerging markets are positioned to benefit from faster economic growth compared to developed economies, supported by favorable demographics and expanding middle-class populations that drive consumption and investment.
• Many emerging markets have strengthened their policy frameworks, improving fiscal and monetary discipline, which enhances their resilience against global economic shocks.
• The weakening U.S. dollar in 2025 is a tailwind for emerging markets, as it lowers the cost of servicing dollar-denominated debt and tends to boost commodity prices, benefiting many emerging economies.
• Emerging markets offer portfolio diversification advantages since their economic cycles and market performance are often less correlated with those of developed markets, reducing overall portfolio risk.

These structural advantages, coupled with supportive macroeconomic trends, underpin positive growth and investment prospects for emerging markets this year and beyond.

Here Are My Top ETF Watchlist Picks 👀

• VWO – Vanguard FTSE Emerging Markets ETF This is a broad-market ETF with low fees (0.07% expense ratio) and wide exposure across emerging markets. It’s great for building a solid foundation in your portfolio with over 5,000 holdings across sectors and countries. Dividend yield: Around 2.84% (as of late 2025). Vanguard VWO Profile
• CEMFX – Cullen Emerging Markets High Dividend Fund (Mutual Fund) This mutual fund focuses on large-cap, dividend-paying emerging market stocks, blending income with growth. While it’s named “High Dividend,” its yield currently sits at about 1.15% SEC yield, which is actually lower than VWO’s dividend yield. CEMFX has a net expense ratio is 1.00% (and 1.22% gross) and about $1.2 billion AUM. It’s a top performer for income-oriented investors seeking steady cash flow alongside emerging markets exposure. Cullen CEMFX Details
• EEMS – iShares MSCI Emerging Markets Small-Cap ETF For the thrill-seekers willing to embrace more risk, EEMS offers targeted small-cap exposure within emerging markets. It also carries a higher expense ratio (0.73%) but potential for greater gains. It has a dividend yield of about 2.52% and holds over 1,600 stocks, providing diversification in smaller companies. iShares EEMS Facts

My takeaway: If I had to choose today, I’d likely lean toward VWO for its broad diversification, low costs, and reliable dividend yield—solid for the long-term or for adding some fun growth to your portfolio. But if you prefer more focus on large-cap companies, CEMFX has a strong track record. And if small-cap excitement and growth potential are your thing, EEMS might just be undervalued and ready to surprise!

So… Which Bucket Do Emerging Markets Belong In?

Think of your portfolio like different buckets for different goals — some for steady, long-term growth and some for a little fun and adventure.

• Long-term bucket: Emerging markets can be real growth engines over 10+ years. With strong drivers like technological adoption, urbanization, and expanding middle classes, these economies often outpace developed markets. The IMF projects emerging markets growing at an average of around 4% annually over the next five years, compared to about 1.7% for developed markets.
• Fun bucket: If you enjoy some market excitement and volatility, emerging markets can add spice to your fun bucket. A general rule of thumb is to keep your “fun” investments under 5% of your net worth, to balance thrill and risk.
• Mid- or short-term buckets: Be cautious here. Emerging markets can be volatile and stir the pot in the short term. If you need money within the next five to seven years, it’s best to keep those funds in more stable, safer investments.

Where Should You Invest Them? (Hint: Aim for Tax-Friendly Accounts!)

Emerging markets can be exciting but somewhat unpredictable, so it pays to be smart about the accounts you use to invest in them. Here’s the lowdown:

• Roth IRAs or Roth 401(k)s: These are great places to hold emerging markets funds because your gains grow tax-free, and qualified withdrawals in retirement are tax-free too. But remember, it’s important to research the available investment options in your retirement plan carefully. Some 401(k) plans offer limited choices that may not include the best-performing emerging market funds, so choose wisely.
• Tax-Free Accounts (like HSAs): Health Savings Accounts (HSAs) offer triple tax benefits—contributions are tax-deductible, growth is tax-free, and withdrawals for qualified medical expenses are tax-free. If you’re investing for the long haul, HSAs can be a tax-efficient place for emerging markets. However, if you plan to use the funds within 5 to 7 years, you might want to reconsider, since emerging market equities are best suited for long-term growth.
• Taxable Accounts: Usually less ideal for emerging markets because foreign dividends are often taxed at ordinary income rates, creating a drag on returns. Though, with careful tax planning—like using the 0% long-term capital gains bracket, donating appreciated assets to charity, or taking advantage of the step-up in basis at death—taxable accounts can still be strategically useful.

Wrapping It Up 🎉

Alright, here’s the scoop—I’m throwing my hands up and confessing: I’m officially rethinking emerging markets as part of my own financial adventure! Why? Because the numbers are popping, the trends are buzzing, and the potential rewards have me genuinely intrigued. If you’ve been sitting on the sidelines, maybe now’s your moment to peek under the hood, sprinkle some emerging markets magic into your portfolio, and watch that growth spark fly!

💬 Want a little help putting it all together? Whether it’s investments, taxes, cash flow, or your whole financial game plan, I’m here when you’re ready. Let’s make your money work smarter and your future brighter! Schedule a quick chat with me anytime: https://calendly.com/prudence-zhu/30min

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