Chinese market is still strong
The Shanghai stock market, as measured by the Shanghai Composite Index, was recently up a whopping 70 percent, year over year, after being up more than 100 percent earlier.
China’s market has cooled, but it’s still unquestionably hot. While China’s economic growth is very real, so was the growth of the Internet nearly a decade ago – and that turned out very, very badly.
China will likely have a stronger and more impressive economy a decade from now, but there are signs of inflation as well as signs that the country may have to moderate its growth to conserve one of the most basic resources we all take for granted: water.
In other words, the balance of risk and reward is now better in other developing economies – ones that haven’t seen their markets triple in a few short years. Look at Mexico, Brazil and Chile, for example, as they offer above-average growth potential and plenty of intriguing opportunities.
No matter how bright the future, investors must take a pass when valuations become unfavorable – as they have in China. Fortunately, we have the rest of the world to look to for bargains, and now is a promising time to get going. For help zeroing in on attractive international investments, check out our Motley Fool Global Gains newsletter at www.globalgains.fool.com.
Ask the Fool
Q: Why shouldn’t I borrow against my credit card and invest in the stock market? – K.L., via e-mail
A: Danger, Will Robinson! The U.S. stock market has, over decades, averaged about 10 percent per year in returns. But that’s an average. In some years, it loses money – such as 9 percent in 2000, 12 percent in 2001 and 22 percent in 2002. (This was followed by a 28 percent gain in 2003 and an 11 percent gain in 2004.) Meanwhile, credit cards were recently charging an average rate of about 13 percent to 14 percent. So overall, in the long run, you’re likely to lose more than you gain if you try to make money in stocks while forfeiting money to credit card issuers.
Q: What does “UIT” stand for? – Liz, via e-mail
A: It’s a unit investment trust, invested in a relatively fixed portfolio of securities (such as, say, five or 20 stocks or bonds), with no investment manager buying and selling holdings throughout its life. The UIT components are held until the trust is liquidated at a predetermined date in the future – which could be several or many years down the road. Investors who want to trade shares of UITs before they mature can often do so on the secondary market.
Unlike a mutual fund, UIT share prices in the secondary market may be priced above or below the net asset value of the trust’s actual holdings. When you buy shares of UITs, you typically pay a sales fee, or load, of around 4 percent or 5 percent. But you should note that many mutual funds carry no sales load at all.
You can learn more at www.sec.gov/answers/uit.htm.
My dumbest investment
Lord, grant me the serenity to accept the things I cannot change, the courage to change the things I can, and the wisdom to know the difference. This means don’t invest in things you don’t know much about. I made a real estate investment in a marginal property and lost hundreds of thousands of dollars. It makes every mistake I ever made in the stock market appear trivial. Blind faith, hunches, and the assumption that there is a solution to every problem are what lead people into financial disasters. You must know your limitations and not fall prey to gimmicks, fads or addictions. – A.M., Honolulu
The Fool Responds: You’re right. Hunches and assumptions can sink us financially. They can sink us in stocks, too, when we blindly act on a hot stock tip or assume that just because a product is popular, that its company’s stock will go through the roof. (The stock may already be overpriced.) It’s best to take the time to learn all about investing before jumping into things that seem too good to be true. You might start at www.fool.com/investing.htm.