What Advisors And The Media Are Not Telling You: The Cult Of Equities Is Over

Anyone who has been an investor throughout the 80’s and 90’s understands what I mean by the “cult of equities”.  The belief was that all one had to do was put money into a well-diversified group of stock mutual funds or invest in blue chip quality stocks and over a period of time, without fail, your money would appreciate.   You would be able to send your children to school and retire on your profits.  The concept of asset allocation was sold to the investing public as a way to reduce volatility in a stock portfolio because everything did not go down at the same time.  Let’s look at the reality of these two assumptions.


cult-of-equities-graphicThe average stock investor made nothing during the prior 10 years (between 2000 and 2010) even though they were exposed to inordinate risk and the average bond investor by comparison was making 7.5% and was taking very little risk.  So the moral of the story is the cult of equities as a way for individuals to make a reasonable return, even though this is what Wall Street and many advisors continue to promote, is basically an illusion for the majority of the investing public.  The methods that were promoted as a way for the small investor to avoid risk, that is asset allocation and diversification, did not work in 2008, everything came down at the same time.  Once that occurred, that technique is no longer an option and yet the majority of investment firms and advisors continue to present asset allocation and diversification as a viable way for investors to reduce their risk.

The Investment Co. Institute, a mutual fund trade group, recently stated that since the market low in March 2009 investors have taken $138 billion from stock mutual funds and stock ETF’s.  This is the first time since 1981 that this has occurred.  Unfortunately what investors have done with their money in an attempt to reduce risk is also misguided.

If you are interested in what can truly replace the cult of equities see our “What’s An Investor To Do” section where I discuss what options are available.