Thursday, December 10, 2009

Mohamed El-Erian: Tough times ahead

Pimco's CEO says individual investors must change their investing style, such as being less U.S.-centric.

What are the most important things that individual investors need to do differently?

The average investor has two issues today. First, the average investor is too U.S.-centric. There's a reason for that; the behavioral finance people will tell you that we like the familiar, so we tend to invest in names that we know, that give us comfort.

The problem is that you don't want to be too U.S.-centric in a globalizing world where the center of gravity is shifting. So the first thing for the average investor to recognize is that the asset allocation of tomorrow is much more global than the asset allocation of yesterday.

Second, most of us have been very lucky -- we haven't had to worry about inflation for a long time. We're moving toward a much more fluid world in which, at some point, inflation will come back.

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