Bogle: Emerging Markets Cheap for a Reason

Benz: Jack, I'd like to get your take on whether investors who are venturing overseas, perhaps into emerging markets, might expect a slightly higher return on their money. It seems that we're hearing some very smart people say that if there is one pocket of attractive valuation in the market today, it might be emerging markets.

Bogle: I think there is a lot of risk, capital risk, sovereign risk, economy risk, most of them are very export-dependent, and so I think they are cheap for a reason. There is no such thing, as one might say, as a free lunch, and I just don't think you need to do it.

Now, if you do it, the international market is about 55% of the world's market cap, and of that 55%, let me guess that emerging markets are maybe 15% to 20%; they've grown a lot. And I wouldn't put 20% of my portfolio into emerging markets--maybe 10%. But let's assume for a minute that you put 20% in, and it does 2 percentage points a year better than the U.S. You've added 40 basis points to your performance. Well, I personally don't think it's worth of it.

Everybody in America, everybody in the world, every intelligent academic, every hedge fund manager, the great Burton Malkiel, all tell me I am wrong, so you can listen to what the smartest people in this business think and get into emerging markets, or what not the smartest person thinks, who just tells you there is no reason to do it, but if you want to do 10%, I wouldn't stop you.