The World At Your Fingertips
As investors, we have the entire global marketplace available to us. The image above shows the global capital market (the markets available for investment around the world). Like an atlas, the image is laid out loosely in the shape of the continents and countries. Instead of national borders, however, each country’s outline is based on the size of its capital market relative to the entire global market. The markets are then identified by their percentage size, and in color by the type of market, developed, emerging, and frontier. Developed markets are in countries with stable political and economic atmospheres, and have transparent systems for accounting and regulation. Emerging Markets are in countries that fall short in some way, whether it is the political regime or lack of market transparency. Frontier Markets fall short in multiple ways, and are generally too risky for individual investment.
Capital Markets Vs. Economies
As you view the ‘map’ you will notice the relative size of the United States capital market, and in particular, the relative size of the Chinese market. While China is the second largest economy (after the United States) by most measures, because of their political structure and their non-transparent systems for accounting and regulation, the actual size of their capital markets is relatively small and emerging.
How to Own the Global Market?
As investors, we want to participate in the growth of all of the meaningful global capital markets in approximate proportion to their overall composition (See: Diversification a Complete Meal). By owning thousands and thousands of different types of companies around the globe through low-cost mutual fund investments, it is possible as an investor to take advantage of the constantly shifting flows of growth in a highly diversified and meaningful way.
Woodstone Financial, LLC is a fee-only financial planning and investment management firm located in Asheville, North Carolina. Contact us to learn more about our services.