EP 313: 4 alternative rules-based share index strategies

Investopoly

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In this episode, Stuart dives into the world of share investing by exploring four alternative rules-based indexing strategies beyond the traditional market cap approach. He starts with a brief history of market cap indexing and highlights its major shortcomings, such as overexposure to overvalued stocks and rebalancing inefficiencies. Stuart then introduces four compelling alternatives:
1. Equal Weight Indexing: This strategy allocates an equal amount to each company in an index, reducing the dominance of large-cap stocks and providing balanced exposure across all company sizes.
2. Dimensional Indexing: Backed by rigorous academic research, this approach adjusts conventional indices based on factors like value, size, and profitability, aiming for higher long-term returns.
3. Quality Factor Indexing: This method selects stocks based on objective quality metrics, offering a defensive strategy against economic downturns by focusing on profitable, low-debt companies.
4. Value Indexing: By investing in attractively priced stocks, this strategy aims to capitalize on undervaluation for above-average future returns.
Stuart also discusses the importance of considering factors such as liquidity, fees, and diversification before investing in any ETF. Whether you have a small or large portfolio, this episode provides invaluable insights to help you navigate the complex world of share investing.

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