Seth J. Masters, Chief Investment Officer of Bernstein Global Wealth Management says the odds of the Dow hitting 20,000 by the end of the decade are excellent:
Over 10-year periods since 1900, stocks have outperformed bonds 75 percent of the time, according to Bernstein’s calculations. But today, bond prices are relatively high — their yields, which move in the opposite direction, are extraordinarily low — and stock prices are relatively low. So the firm sees the chance of stocks beating bonds over the next 10 years at 88 percent.
Stocks have been cruel and it is hard to love them now. Still, Mr. Masters writes, “We think that 10 years from now, investors will wish they had stayed in stocks — or added to them.”
The damage done to investor psychology over the past decade is going to stay with investors for a long time, maybe even a generation. The fact that the S&P; 500 has had an annualized return of 16.38% over the past three years ending 6/30 has not kept investors from scrambling to get out of equities and piling into fixed income (The Barclays Aggregate Bond Index has only had an annualized return of 6.94% over the past three years, ending 6/30).
Being optimistic about stocks is uncommon to say the least right now. Kind of like being pessimistic about stocks in 1999 was uncommon. It could be a big mistake to swear off stocks for the next 5-10 years. Understandably, investors feel an enormous amount of trepidation if they are made to feel that it is an either/or decision. Enter tactical asset allocation strategies that have the ability to increase or decrease exposure to multiple asset classes, including equities and fixed income. Having a framework for dispassionately allocating to strong asset classes, which is the goal of relative strength-driven tactical asset allocation strategies, can be an effective way to deal with the challenge of emotional asset allocation. Clients are open to tactical asset allocation because it speaks to both their hearts and their minds.
