| A current theme among Wall Street wealth
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| | about the correlation and diversification
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| managers is for individual investors to
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| | of your portfolio.
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| have index funds as their core holdings
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| | Where to focus your alpha energy?
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| and to focus the remainder of their
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| | Investments in real estate, commodities,
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| assets in high alpha investments, which
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| | and energy are less correlated with the
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| will produce returns not correlated with
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| | stock market (although I've never thought
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| the market.
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| | commodities were suitable for individual
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| A quick digression for those of you who
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| | investors).
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| aren't familiar with alpha and beta. In
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| | The Wall Street pros also recommend stock
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| traditional finance, return not
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| | fund mangers who have unique strategies
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| correlated with a broad market index,
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| | and can demonstrate a high alpha relative
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| such as the S& P 500, is referred to as
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| | to the market (and, of course, positive
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| alpha.
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| | relative performance).
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| The return which is correlated to the
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| | Ask your investment adviser for
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| market is beta. An index fund should
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| | suggestions. The alphas for individual
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| have the same return (positive or
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| | mutual funds (and individual stocks) are
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| negative) as the index it mimics. (One
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| | available from some brokers and online
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| of the controversies surrounding some
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| | premium services.
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| ETFs is their performance has not tracked
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| | Alpha and index fund investing makes a
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| their underlying index.)
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| | great deal of sense. You know what to
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| The theory behind Alpha and Index Funds
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| | expect in terms of risk and return when
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| is multi fold: 1. the major indices are
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| | you invest in an index fund.
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| a good place for an investor to be, both
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| | Having a portion of your portfolio in
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| from a risk and return perspective; 2.
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| | index funds leaves you free to
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| you can't outperform the major indices,
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| | concentrate your investment time and
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| so don't waste your time; 3. find those
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| | energy (think alpha waves) on those
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| investment niches with high alphas to
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| | investments which can make a difference.
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| increase your return and reduce the
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| | Picking high alpha investments, which by
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| overall risk in your portfolio.
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| | their nature are less correlated with the
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| Even if you don't subscribe to this
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| | stock market, should reduce the risk
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| theory, you might find it an interesting
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| | volatility of your portfolio and,
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| exercise to review the alphas -- every
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| | depending upon the investment, provide
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| investment has one -- of your current
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| | above market returns.
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| holdings. They will tell you something
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|
