Stock Market Investing Strategy
How can this knowledge help you decide where to put your money? First, consider the stock market indices’ differences in weighting. Indices weighted by market capitalization are heavily influenced by the top dozen or so companies, which can account for around 40 percent of the index’s moves. Being so dependent on a handful of companies isn’t wise – even the best-established, highest-performing companies aren’t guaranteed to stay that way.
To diversify your investment and reduce your risk, consider an equal-weighted strategy, which disregards company size so the weighting is spread equally. Instead of relying on the top ten holdings of the stock market index, many of which are technology companies – meaning your portfolio isn’t very diversified – an equal-weighted strategy distributes your investment among a larger number of companies. That diversification cuts your risk and makes for potentially better returns over the long haul.
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