Dear Boarders,

My 401K account shows a huge hit on account of the market crash. So in 2009 I am planning to re-balance the account and hope for a better show.

The problem is the yield on US treasuries is now down to almost nil. The future of S&P 500 or DOW is not very encouraging. I was planning to put some move in emerging markets EFT. The reasoning being that the dollar is bound to go down in future to compensate for the speed with which the US gov is printing money. Even if If emerging markets stay where they are, I will have a dollar gain just due to the falling dollar.

The most promising emerging markets fund seems to be Vanguard Emerging markets fund (VEMIX - historical data available on finance.yahoo.com)

Can boarders who are technical experts tell if it is the right time to enter this EFT now or wait for some time?

It had dropped to $12.15 earlier. Don't know what held me back from re-balancing then :-(.

Regards,
Sudhanshu

I certainly do not subscribe to your idea of buying EM to hedge your dollar. Remember, EM is a high beta market. So there is a greater likelihood that if the US market is expected to fall then EM will have a much greater fall due to their high beta nature. So whatever gains you might make on your currency will be lost because of the loss in capital gains from your investment.

The best way to hedge your dollar is buying GOLD. ticker symbol: GLD. Other ways to hedge is to buy into currency ETFs of which I do not have much of an idea/personal experience.

I do agree with you.

The US stock markets don't have much to offer at these levels.

The US treasury yields are almost 0. This means overseas investors won't put incremental money into US treasuries and may even start withdrawing money from US treasuries.

Add to this, the huge fiscal spending that the Obama government plans to do.

The future of the US dollar looks bleak.

As kkr555 stated, emerging markets are high beta markets and will under-perform if global equity markets go down again.

My suggestion would be you do invest in emerging markets. However, do it in a systematic way. Increase your exposure slowly over the next 1 year. The global economy is much more stable than it was a few months back, but still there is uncertainty about the future.

If you add positions slowly over the next 1 year, you reduce a risk of any shock to your portfolio.

My favourite emerging market is India as it is decoupled from the western economies to a greater extent, compared to other economies like China.

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It's not just the US government, but many other governments are also trying to inflate their respective economies at the cost of widening fiscal deficits.

Gold is expected to one beneficiary of this deficit spending.

If governments keep printing money in order to revive the economies, sooner or later these currencies will lose value and gold will become expensive.

In my opinion, all US investors should have some exposure to gold.

The extent of exposure will depend on how bearish the investor is on the US dollar.

If I were a US resident and was saving for my retirement, I would keep 15%-20% of my savings in gold.

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Thank you for your valuable advice.

Yes I do agree that gold would be a better alternative and India is the best EM. But 401K plans are administered and only a fixed set of ETF's are available for investing. From the ones available to me, VEMIX is the only ETF that offers exposure to India.

I will start putting 20% of the monthly 401K deduction in this EFT and the rest in US treasuries and bonds (Have to make up the 100% somehow :-( and the alternatives are not good)

Regards,
Sudhanshu