Mohamed El-Erian Part II: ETF Risks, Gold, And Market Gloom
b"With\\xa0Mohamed El-Erian, Chair of President Obama's Global Development Council, Chief Economic Adviser at Allianz, Author of The Only Game in Town: Central Banks, Instability, And Avoiding The Next Collapse
Mohamed El-Erian addresses the risks posed by exchange traded funds (ETFs), which he views as powerful instruments that deliver diversification and liquidity, but advises investors to remember they are buying the whole basket. It\\u2019s like going to a restaurant and ordering the whole menu. When you do this, often the bad components of an ETF can undermine performance from the good ones, and this doesn\\u2019t always make sense. Secondly, ETFs give you the delusion of liquidity; because when markets tank, ETFs may trade with prohibitive bid-offer spreads of as much as 10%. He believes ETFs make sense for investments in broad indexes such as the S&P 500 ,but investors need to be cautious when looking at specialized esoteric markets such as high-yield ETFs.
He also talks about the value of gold as a safe haven and believes people romanced gold and took prices too high, but then under-bid to where current gold prices are more reasonable. He recommends having up to 5% gold in your portfolio, because it\\u2019s negatively correlated to many other investments\\xa0 and adds diversification.
He believes investors need to be cautious now for two reasons: The Fed\\u2019s inability to predict the risks faced by the U.S. economy, and the impact of human behavior when fear precipitates bad investing practices. Finally he addresses how technology is driving exciting innovation while socio-economic winds of change are threatening economic growth."