Frightening headlines abound today about Turkey. Fears about how the plunging Lira could pose a risk to the country that serves as a geographic buffer between Europe and Syria, President Erdogan threatens that Turkey may go searching for “new friends” like Russia and Iran if the US doesn’t start showing some respect and terms like hyperinflation and contagion are being thrown around in articles and op-eds everywhere.
There’s no doubt that world markets, economic policy and geopolitical relations are complicated. The interplay between countries and their leaders, their currencies and their markets is a remarkably complex system. But what does it all mean for regular people who are investing their portfolios for things like retirement or college funding?
First, for some context on Turkey. The value of Turkey’s capital markets relative to the value of the stock market worldwide is about .2%. If you have exposure to Turkey, you likely have it via an Emerging Markets fund or ETF, and Turkey makes up 1.5% or less of the total value of that portfolio. So, if you have an all-equity portfolio that has a market weight exposure to emerging markets, about 13%, then your total portfolio has exposure to Turkey of ~0.002%.
Let that sink in for a second because that’s not a lot. It’s certainly not proportionate to the % of newspaper space or CNBC panelists currently covering Turkey.
There’s no doubt that the recent trade disputes between the US and our trading partners and the tariffs that accompany those have negatively impacted non-US stock markets. The entire World-ex-US market is in negative territory YTD (how quickly we all forget that we made almost 40% in EM last year). But that doesn’t mean it’s a good time to abandon global diversification. The fact remains that approximately ½ of the value of the world stock market resides in companies domiciled outside the United States and 85% of the world’s population lives in the emerging and developing world. In other words, there are a lot of good investment opportunities all over the world.
If investors should have learned anything from history, it’s that over the long-term, capital rewards the equity owners of companies which provide valuable products and services to the consumers who need them. Further, diversification is a powerful tool to help achieve efficient exposure to capital markets and balance volatility over time. Maintaining a long-term perspective in a world of sound-bite news is difficult, but that’s the approach prudent investors should take to reach their long-term goals. Hang in there.
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