Don't give up on Chinese stocks yet
China's stock market is crumbling. Should you avoid investing in the nation?
There's no other way to put it, the Chinese stock market is ugly. The Shanghai composite measure of stocks in China dropped 8% overnight Monday. That was the worst one-day drop since 2007. It's not just a one-day drubbing. The index is down a crushing 28% from its high in June.
But wait. Don't most financial advisors tell you investing in emerging markets like China is a good idea? It's not looking smart right now. But that's kind of the point. Very often, emerging markets stocks zig when our U.S. markets zag. Emerging markets stocks look bad now – but they can often outperform during periods U.S. stocks are suffering. By owning the right mix of both in a diversified portfolio, you can help smooth out the bumps – over the long haul.
Over the long haul, emerging markets stocks are one of the best – although riskiest – bets you can make. The IFA Emerging Markets index has gained nearly 13%, on average, per year since 1928, says IFA.com. That's about 33% better than the average 9.8% gain by the S&P 500 during that time. Yes, it's true emerging markets stocks are 26% riskier than U.S. stocks. But that's why you don't put your whole portfolio in them.
Don't give up on China. Eventually, you'll be glad you own a piece.
Follow Matt Krantz on Twitter @mattkrantz