In this episode, Mark talks about how the market is far from over when it comes to hitting all time highs. What is the ultimate investment strategy for my money? Business owners do not like to invest in “the stock market” because they like to know what they are invested in, so they invest in their own company. The ease of index funds comes with risk: “the index out performs money managers”. Investors don’t understand how indexes are structured or how returns happen and everyone is pouring their money into indexes. When everyone follows that, you own stocks that are extremely expensive leading to a big correction. The popularity of index tracking funds now account for over 30% of AUM, but investors must understand funds and they pitfalls. Computers are driving programs and trades, and investors think they are diversified when they go and buy an index fund. Diversification is not the only factor. You must also recognize the correlation factor, a term used to look at the correlation of how much two different investments move in the same direction. Asset allocation is what diversifies your correlation factor.
August 7, 2017