Why doesn't the emerging markets index reflect GDP growth?
"GDP being a measurement for an economy's growth and with the stock market being driven (mostly) by company profits you would expect a tight correlation between GDP growth and stock market performance. After all, a growing economy should lead to a corresponding increase in profit right? But the stock market is heavily influenced by investor mentality; irrational exuberant buying and panic selling make the stock market far more volatile than GDP ever can be. Just look at the 2001 bubble and 2008 panic sell-off for famous examples. I feel emerging markets are particularly prone to overly optimistic buying to ""get in"" on the GDP growth followed by overly pessimistic selling when politics get unfavorable. Also keep in mind that GDP measurements are all done after the fact, the growth that is reported has already happened. The stock market might have already expected the reported growth and priced it in. A final point: governments and companies in emerging markets have a reputation (sometimes deserved) of poor governance, think corruption, nepotism etc. So even if the economy grows substantially investors might not believe they can profit from the growth.  P.S. What do you base the ""no great increase"" on? Emerging markets have had a rough decade but that index would have still returned 9% annually if you held it since 2001."
As a corollary to this; the average investor will never know more than the market. Buffett can buy mispriced securities because he runs a multi-billion dollar company dedicated to finding these mispricings.   My advice for the common man:  1. Invest in both Stocks (for growth) &amp; Bonds (for wealth preservation) 2. Stocks should be almost exclusively Index Funds  That's it.  The stock market has a 'random walk with a positive drift' which means that in general, the market will increase in value. Index funds capture this value and will protect you against the inevitable BoA, AIG, Enron, etc.   It's fine to invest in index funds with a strategy as well, for instance emerging market ETFs could capture the growth of a particular region. Bear ETFs are attractive if you think the market is going to hit a downturn in the future. "Some of the other answers recommended peer-to-peer lending and property markets. I would not invest in either of these. Firstly, peer-to-peer lending is not a traditional investment and we may not have enough historical data for the risk-to-return ratio. Secondly, property investments have a great risk unless you diversify, which requires a huge portfolio. Crowd-funding for one property is not a traditional investment, and may have drawbacks. For example, what if you disagree with other crowd-funders about the required repairs for the property? If you invest in the property market, I recommend a well-diversified fund that owns many properties. Beware of high debt leverage used to enhance returns (and, at the same time, risk) and high fees when selecting a fund. However, traditionally it has been a better choice to invest in stocks than to invest in property market. Beware of anyone who says that the property market is ""too good to not get into"" without specifying which part of the world is meant. Note also that many companies invest in properties, so if you invest only in a well-diversified stock index fund, you may already have property investments in your portfolio! However, in your case I would keep the money in risk-free assets, i.e. bank savings or a genuine low-cost money market fund (i.e. one that doesn't invest in corporate debt or in variable-rate loans which have short duration but long maturity). The reason is that you're going to be unemployed soon, and thus, you may need the money soon. If you have an investment horizon of, say, 10 years, then I would throw stocks into the mix, and if you're saving for retirement, then I would go all in to stocks. In the part of the world where I live in, money market funds generally have better return than bank savings, and better diversification too. However, your 2.8% interest sounds rather high (the money market fund I have in the past invested in currently yields at 0.02%, but then again I live in the eurozone), so be sure to get estimates for the yields of different risk-free assets. So, my advice for investing is simple: risk-free assets for short time horizon, a mixture of stocks and risk-free assets for medium time horizon, and only stocks for long time horizon. In any case, you need a small emergency fund, too, which you should consider a thing separate from your investments. My emergency fund is 20 000 EUR. Your 50 000 AUD is bit more than 30 000 EUR, so you don't really have that much money to invest, only a bit more than a reasonably sized emergency fund. But then again, I live in rental property, so my expenses are probably higher than yours. If you can foresee a very long time horizon for part of your investment, you could perhaps invest 50% of your money to stocks (preference being a geographically diversified index fund or a number of index funds), but I wouldn't invest more because of the need for an emergency fund." California has a GDP 60% larger than that of Texas, and this is only one quarter, so I really don't think cherry picked data for a 3 month time span proves dick.  And why don't we look at Kansas' growth, the real dream of supply side economics (while the state is being crushed by debt and an inability to raise funds). The point being if a state is run so poorly that it can't even provide basic services its only a matter of time before businesses leave to go to states that can provide things like roads and other infrastructure. The Vanguard Emerging Market Bond Index has a SEC yield of 4.62%, an expense ratio of 0.34%, a purchase fee of 0.75%, and an average duration of 6.7 years.  The Vanguard Emerging Market Bond Index only invests in US Dollar denominated securities, so it is not exposed to currency risk.  The US Intermediate Term Bond Index Fund has a SEC yield of 2.59%, an expense ratio of 0.1% and an average duration of 6.5 years.  So after expenses, the emerging market bond fund gives you 1.04% of extra yield (more in subsequent years as the purchase fee is only paid once).   Here are the results of a study by Vanguard: Based on our findings, we believe that most investors should consider   adding [currency risked] hedged foreign bonds to their existing diversified portfolios. I think a globally diversified bond portfolio results in a portfolio that's more diversified. A correction always happens every 10-12 years, but the GDP hasn't been moved because of housing this time, which had never happened before either.  So just a typical correction could happen, like in 1998, and 1988 and the decades before that. "This is the best tl;dr I could make, [original](http://www.cnbc.com/2017/06/28/chinas-debt-surpasses-300-percent-of-gdp-iif-says-raising-doubts-over-yellens-crisis-remarks.html) reduced by 69%. (I'm a bot) ***** &gt; Casrten Brzeski, senior economist at ING said that &amp;quot;High debt levels mean that the debt crisis has not been solved, yet. Neither in the US, nor in the Eurozone. Increasing debt levels in Asia and other emerging market economies also show that a structural change has not yet taken place.""  &gt; According to the IIF, despite the fact that debt levels have slowed down in mature economies, emerging market debt rose 5 percentage points from a year ago.  &gt; &amp;quot;The household debt-to-GDP ratio hit an all-time high of over 45 percent in the first quarter of 2017 -well above the Emerging Market average of around 35 percent. In addition, our estimates based on monthly data on total social financing suggest that China&amp;#039;s total debt surpassed 304 percent of GDP as of May 2017,&amp;quot; the IIF noted.   ***** [**Extended Summary**](http://np.reddit.com/r/autotldr/comments/6p6vug/chinas_debt_surpasses_300_percent_of_gdp_iif_says/) | [FAQ](http://np.reddit.com/r/autotldr/comments/31b9fm/faq_autotldr_bot/ ""Version 1.65, ~174153 tl;drs so far."") | [Feedback](http://np.reddit.com/message/compose?to=%23autotldr ""PM's and comments are monitored, constructive feedback is welcome."") | *Top* *keywords*: **debt**^#1 **Bank**^#2 **market**^#3 **trillion**^#4 **levels**^#5" Typically developing economics are marked by moderate to high inflation [as they are growing at a faster pace], higher in savings rate and higher lending rates. If you reduce the lending rate, more business / start-up will borrow at cheaper rate, this in turn means lowers savings rate and leads to higher inflation. To combat this Central Banks make borrowing expensive, which lowers inflation and increases the saving rate. Essentially all these 3 are tied up. As to why these countries offer higher interest on USD is because most of the developing countries have trade [current account] deficit. They need to bring in more USD in the country. One of the ways is to encourage Non Resident Citizens to park their foreign earning back home, ensuring more funds USD inflow.  The rate differential also acts as a guide as to how the currency would be valued against USD. For example if you get 8% on USD, less than 12% had you converted same to Rouble, at the end of say 3 years, the exchange rate between USD and Rouble would factor that 4%, ie rouble will go down. Developed countries on the other hand are marked by low inflation [they have already achieved everything] as there is no spurt in growth, it more BAU. They are also characterized by low savings and lending rates. The best way to gauge the state of the economy is to look at a chart of the stock market indexes in that particular country. The second way to gauge the state of an economy is to look at a chart of existing and new home sales in that country. Asset inflation is the #1 indicators. Also, it doesn't matter if the markets are filled with useless junk. Facebook is the same Facebook as before and it has risen 10 fold. The only thing that matters is the price of the indexes, themselves. Also, the media and media, both say that the markets are in bad shape constantly because they are constantly negative. Things are so negative that the negativity has even spilled over to this post. But, during all this negativity, the prices of all assets have continued to multiply at exuberant proportions.