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Emerging Markets

That farm shop selling vegan cheese may be a new market, but emerging markets are something very different. In the financial world, they refer to investment risks that affect whole countries rather than just companies.

Let's say you invest in Apple. You stand to lose money if the newest Apple product tanks, or you could gain some cash if Apple keeps on trucking or really hits it out of the park. There, you've invested in a company.

Next, you decide that you drink enough pumpkin lattes to seriously affect coffee prices. You invest in coffee beans. Now you stand to lose money if a super-insect destroys the entire coffee crop. You've invested in an entire industry.

But maybe you re-watch Princess Diaries and decide that Genovia is about to take off. A bunch of other investors also invest in that country (even though it's totally fictional) as it turns out Genovia starts exporting something valuable (maybe Princess Diaries merch?) so its economy grows. You've now invested in an entire country.

You might think that investing in a country is safer than investing in a company. An entire country can't flop, can it? What could possibly go wrong?

Not so fast.

In the 1980s, investors in Latin America saw their investments obliterated when countries in that part of the world printed too much money, causing out of control inflation. More recently, if you invested in Spain (or its currency), you definitely felt the pain.

Basically, if a country says "oops, we can't pay our debts" (which can happen) or suffers economic collapse or gets into a war, you could lose your money. Since you're accepting a pretty big risk, though, you can also expect a good return on your investment if the country does do well.

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