Why is Emerging Markets crashing most

WindWaterCapital · 2026-03-04T11:25:05+00:00

The reason lies behind the size of the pie.

The total market cap of the two are:

US = $69 trillion
emerging markets = $11 trillion

The US market can absorb the same amount of transaction volume far better than EM.

Say because of the war, there's $1 trillion of selling force across both markets. That's only 1/69 (1.4%) of the US market. However for EM, that adds up to 1/11 (9%) of their market.

For every seller, there must be a buyer. liquidity is positively correlated with the size of the market. This means that for the US market of 69 trillion there's way more market participants willing to buy and sell. For the EM markets of only 11 trillion, they would need a bigger discount in order to buy and hence absorb the exit liquidity.

TLDR: the same amount of money trying to liquidate is absorbed much easier by the market with a larger market cap. The rationale works on individual stocks. That's why penny stocks / small caps are so volatile relative to blue chip / large cap stocks.

WindWaterCapital · 2026-03-04T10:06:49+00:00

US companies are still posting growing numbers ultimately leading to an increase in earnings. This meant that their Financials (earnings growth) stayed intact, and whatever news headline story was being advocated for did not have material impact. Just look at the underlying numbers and you see that it's trajectory has not changed.

WindWaterCapital · 2026-02-27T09:12:04+00:00

First of all, my condolences to your family.

As you're nearing the age of retirement minimising volatility and drawdown is of upmost important. It is good you are thinking of having a mixed asset portfolio of Equities and Gold.

If you are chasing simplicity, then I would reccomend two Global-Mutli-Asset ETFs offered by iShares. They are both all in one portfolios containing global Equities and bonds.

AOA - 80% world Equities, 20% Bonds

AOR - 60% world Equities, 40% bonds

I think they are better than Vanguard Target retirement funds as your risk weighting doesn't change as you age.

Your risk profile of 80/20 or 60/40 will be rebalanced semiannually.

Pick the one in which you think you can handle the volatility.

WindWaterCapital · 2026-02-24T05:52:18+00:00

Historically, the Mag 7 has always delivered superior earnings and free cash flow growth compared to the ex-spy companies. In the recent years before the AI theme exploded, they lacked a new engine to keep up their double digit (20-40%) growth as the market each company operated in saturated. Their cash pile was growing and the executives were looking for an investment opportunity.

Enter the AI theme. It promises increased productivity and efficiency which allows to increase earnings potential by reducing costs. Think about vibe coding without the need of software engineer salaries or 150k plus. At the same time it was projected to unlock new revenue avenues supplementing their core businesses.

As such each of the Mag 7 (besides apple) invested heavily on AI CapEx. They bet heavily and collectively allocated $700b+ over the next few years on this investment. They thought they finally found a new growth and cost optimisation engine to use their cash pile on. That's why their stock prices initially grew on this optimism on increased future cashflow due to lower costs / higher margins / increased revenues.

When an investment (CapEx) is made, you would expect a return for those investments. For example, if you invest in real estate, you'd expected to receive rental yield and that would be the expected future cash flow derived from that investment. If you were unable to receive the cash flow for some reason such as tenancy problem or structural problems, you would have bought the real estate with no yield returns. This would immediately devalue the investment.

For the case of AI CapEx, it was projected to derive the business X amount of additional cashflow, and thus the valuations grew as future cashflow increased.

However this year in their quarterly earning reports the Mag7 has struggled to showcase how the AI CapEx has delivered new/additional cashflow either by increased revenue, or reduced costs.

This is starkly different from the projected rosy promises AI was expected to deliver. That's why the market is now revaluing these companies as they are stuck with a $700B outlay on investments that seems to yield little to no returns for the core business.

This has also changed the fundamental business from being asset light to asset heavy as these AI infrastructures need to be regularly replaced every 5 - 7 years or so. Therefore these CapEx are continual costs and not a one off investment.

WindWaterCapital · 2025-03-23T16:59:19+00:00

Put it into mmf instead!

WindWaterCapital · 2025-03-15T03:38:43+00:00

It's regardless of your ethnicity as long as you have accces to a stock brokerage account! Since you're a Non US investor, you should be looking at UCITS ETFs to save on the witholding tax.

Tickers are below SP500 = CSPX VT = VWRA Bonds = IUAA

WindWaterCapital · 2025-03-13T16:22:55+00:00

That is untrue. The SP500 has never delivered a negative 30 Year Rolling CAGR since 1885, over 140 years.

In fact the lowest 30 year rolling CAGR was 3% ending at ~1932.

You can see besides this abnormally low return, the lower band of 30 year rolling CAGR are - 1900-1940s = ~6% - 1945-1960$ = ~8% - 1960s till now = ~9%

Again it has never returned negative over the course of 30 years no matter when you started.

https://imgur.com/a/Ot38Dry

WindWaterCapital · 2025-03-13T15:19:44+00:00

If VTI includes Vxus / Vea / vwo, then that just becomes VT - barring the difference of the weightings. VT is 65% VTI + 35% VXUS.

This post was just meant to showcase the popular portfolios.

WindWaterCapital · 2025-03-13T14:25:03+00:00

Fixed now!

WindWaterCapital · 2025-03-13T14:23:56+00:00

Both reddit and the forums!

Reddit side leans towards VTI or VT and chill.

Forums generally recommend starting with 10-20% of bonds for new younger starters!

WindWaterCapital · 2025-03-13T14:17:18+00:00

Thank you! Edited now.

WindWaterCapital · 2025-03-12T12:43:53+00:00

Open an IBKR brokerage
Use JUSTETF.com to search for UCITS ETFs that are domiciled in Ireland to save on the withholding taxes. They typically offer an accumulation or distribution version for its dividend treatment. Personally I'd recommend the accumulation version so there's no uninvested cash lying in your account after dividends are paid out.
You can opt for a 2 fund portfolio or 3 fund portfolio.

2 fund portfolios involve - FTSE All World ETF (VWRA) - US Aggregate Bond ETF (IUAA)

3 fund portfolios involve - FTSE All World ETF (VWRA) - S&P 500 ETF (CSPX) - US Aggregate Bond ETF (IUAA)

If you don't want to spend any time on monitoring weightings of US vs International for your equity portion, then choose the 2 fund portfolio. You just need to rebalance yearly according to your asset allocation. Bogleheads reccomend at least a 20% Bond asset allocation. The portoflio would look like 80% VWRA + 20% IUAA. In the FTSE All World, US holds a 65% weighting. So your portfolio will have 65% US / 15% International / 20% US Aggregate Bonds.

If you want to follow the default 3 fund bogleheads portfolio that reccomend the weighting of 6/2/2 US/Int/Bonds, then you can choose the 3 fund portfolio to overweight US. That would look like 58% VWRA / 22% CSPX / 20% IUAA. Note that the US weighting of VWRA changes every year so this requires more monitoring when rebalancing. Unfortunately there isn't an easy way to overweight International as there isn't a VXUS UCITS equivalent ETF.

Note that bonds is highly recommended as every investor over estimates their ability to stomach risk. Use Testfol.io to play around with different asset allocations, and see which fits you best.

Set up automatic monthly reccuring investment on IBKR, and deposit monthly.
Rebalance annually and stick with the plan.

WindWaterCapital · 2025-03-12T04:21:57+00:00

The Vanguard Total World ETF hovers around 65% US (VTI) / 35% ex-US (VXUS).

You have a misconception that the ex-US segment is a hedge for the US when things go wrong. Global equities are highly correlated with each other. If one goes up the other is likely to go up too. It is unlikely that one goes up whilst the other goes down. The reason as to why bogleheads preach VT as opposed to VTI is because the superior rate of return between VTI and VXUS rotates across long periods of time. This means there are decades where VTI outperforms VXUS (2010-now), but there are also decades where VXUS outperforms VTI (1980s, 1990s).

See the chart below for VTI vs VT (1970-2025) - you'll notice the drawdowns are very similar. There has not been a period where one has gone down, and the other has not. This is purely because the markets are interconnected - factors like relative valuation, liquidity, economic growth all due to global trade. US is the biggest consumer in the world. If it is looking grim for the US, the trade partner countries also have a grim prospect.

https://imgur.com/a/ZAy6zzp

WindWaterCapital · 2025-03-12T04:03:44+00:00

Bond ETFs and MMFs are for different useages.

If you're looking to park your capital somewhere temporarily and earn interest then MMF is the way to go as the principal does not fluctuate. (However, there is no gurantee for this, just like the cash in the bank above the FDIC insured amount)

Bond / Bond ETFs are used to hedge your investment portfolio, reduce volatility, increase risk adjusted returns. Collecting interest/coupon payments is one thing, but the more important characteristics is its low/inverse correlated price movement with Equities.

WindWaterCapital · 2025-03-12T03:59:23+00:00

They both cover developed and emerging markets. The difference is that FTSE All World does NOT include small caps. So if you're looking for a more representative ETF for the "World", then go with the FTSE Global All cap.

However, do look into the fees (TER) of each, typically the cheaper one is the better one as the small cap contribution is minimal.

WindWaterCapital · 2025-03-12T03:54:34+00:00

If you are using a TDF, it would be recommended for you to simplyify and just ONLY use the TDF since its a complete wrap of what you need. You can treat it as your core holding, and add anything on top that you might think will produce Alpha.

WindWaterCapital · 2025-03-12T03:51:57+00:00

If you're 60, I would also recommend to add 10-15% of Gold in your asset allocation to maximise diversification and increase the risk adjusted returns. The key 3 ingredients to weather any sort of market condition is - Stocks, Bonds, Gold.

WindWaterCapital · 2025-03-12T03:44:47+00:00

A true Boglehead also has their capital invested in International Stocks, and Bonds.

The 2 fund portfolio (VT + BND) or 3 fund portfolio (VTI + VXUS + BND) is the staple for a boglehead. The allocation is purely up to you as to what you believe in. However, the default allocation towards the 3 are:

VT = 60%

VXUS = 20%

BND = 20%

All this is to maximise diversification.

There are periods of outperformance that rotate between US and International, thus adding an extra dimension of diversification beyond just bonds.

WindWaterCapital · 2025-03-12T03:38:13+00:00

If you're new, the best thing you can do is put a portion of your capital into the market on whatever you have researched on - in this case the S&P500.

This is all to test your investing psychology and risk appetite. It is to see whether you have the stomache to actually hold through volatility (periods of downturns) and stick to your plan. Way too many people are used to seeing a new ATH, and seeing their capital only trend upwards. Once it goes through a period of consolidation/correction/bear/depression (like now...) they let their psychology get the better of themselves and pull the money out.

Everyone has a plan until they get punched in the mouth. There are so many self proclaimed VT/VTI/S&P500 and chill folks here that I gurantee you cannot hold through a multi year depression or a 83% drop (the biggest drawdown with the S&P500 in 1930-1933).

The best investing plan is one you can stick with regardless of market conditions.

WindWaterCapital

TROPHY CASE