Central banks around the world have poured buckets of cash into the financial system over the past seven years, boosting financial markets in a major way.
But that's no longer enough to keep pushing the markets higher, says Mohamed El-Erian, chief economic adviser for Allianz.
"We are coming from a period in which liquidity has been the major driver of asset prices," he told CNBC
. "What the market is telling you today is, 'You know what? That is no longer sufficient to maintain prices at a high level.' You need something more, and that something more is fundamentals."
So what should investors do? Take out money from public markets, and put some of it in cash to provide dry powder that can be deployed when markets drop, El-Erian says.
As for the rest, "don't give up on some really exciting opportunities that are happening in the start-up world, in the private equity world," he said. "There's a lot going on, especially in technology."
Of course many of us aren't wealthy enough to invest in private equity funds or in venture capital funds that back start-up tech companies. You can invest in the stock of some private equity managers like Blackstone, the world's largest. In addition, there are mutual funds that try to replicate private equity investments and ones that invest in venture-backed tech start-ups.
Elsewhere on the investment front, many Americans who graduated from college this spring are now starting jobs that pay them enough to begin putting something away for retirement.
Mike Sorrentino, chief strategist at Global Financial Private Capital, has several investment tips to offer these millennials.
- "Invest in equities," he writes on MarketWatch. Recent college graduates should place all of their savings in stocks, Sorrentino advises. And why? "Equities have delivered an average annual return of 10 percent, which is the largest of any major asset class."
- "Buy index funds." You're probably aware that investment legends Jack Bogle, founder of The Vanguard Group, and Warren Buffett, CEO of Berkshire Hathaway, agree. "Active management of a stock portfolio requires skill, education, and experience," Sorrentino notes. "Younger investors have none of these, and those who try will be doing nothing more than speculating."
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