Why Too High a Correlation May Be Dangerous to Your Wealth

Correlation is dangerously high in the equity market right now with growth, value and multiple market-caps moving up and down together, said Brian Jacobsen, Chief Portfolio Strategist at Wells Fargo Advantage Funds. Jacobsen added that Treasurys have also appreciated in the past year which is not providing sufficient diversification. He said overly correlated portfolios lessen the benefits of diversification. Jacobsen said adding liquid alternative funds to an asset allocation is a good way to reduce the dangers of a portfolio that is too one directional. Finally, he said liquid alternatives should make up about 10% to 15% of an individual's portfolio due to the volatility surrounding the Federal Reserve's looming rate hike.