{"id":27171,"date":"2012-02-06T07:50:43","date_gmt":"2012-02-06T12:50:43","guid":{"rendered":"http:\/\/countingpips.com\/fx\/2012\/02\/06\/risk-aversion-ad-absurdum\/"},"modified":"2012-02-06T07:50:43","modified_gmt":"2012-02-06T12:50:43","slug":"risk-aversion-ad-absurdum","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/fx\/2012\/02\/06\/risk-aversion-ad-absurdum\/","title":{"rendered":"Risk Aversion Ad Absurdum"},"content":{"rendered":"

By The Sizemore Letter<\/a><\/p>\n

\"\"<\/a>Barron\u2019s ran a featured story by Kopin Tam in last weekend\u2019s edition titled \u201cJust Don\u2019t Lose It<\/a>\u201d that was telling.\u00a0 Tam pointed out that, even after the best January in well over a decade, investors weren\u2019t embracing equities, and neither were their financial advisors.\u00a0 Only 44 percent of financial advisors planned to increase their clients\u2019 exposure to stocks in 2012 compared to 63 percent this time last year.<\/p>\n

I wasn\u2019t particularly surprised to read these statistics.\u00a0 After all, the financial wealth of this country is dominated by the Baby Boomers, the largest and richest generation in history.\u00a0 The Boomers lived through the biggest bull market in history (1982-2000), but they also saw a decade\u2019s worth of returns go up in smoke in 2008.\u00a0 At this stage of their lives, they don\u2019t feel like they can afford the risk of another meltdown.\u00a0 I get that.\u00a0 Even while I myself am bullish, I understand Boomer risk aversion.<\/p>\n

This is where it gets weird: it\u2019s not the Boomers that are skittish. It\u2019s their children.<\/em><\/strong><\/p>\n

As Tam writes, \u201cRisk aversion is particularly acute among \u2018Generation Y\u2019 investors born after 1980, who have decades to go before they retire but are especially reluctant to invest\u2026 As a result, this cohort allocates roughly 30% of their money on average to cash, more than any other age group.\u201d<\/p>\n

Far from being the reckless risk takers that youth are wont to be, this generation is showing a level of risk aversion I might have expected from an elderly retiree that lived through the Great Depression.\u00a0\u00a0 Fully 40 percent of the Gen Y investors said they would \u201cnever feel comfortable investing in the stock market.\u201d<\/p>\n

I can\u2019t say that I don\u2019t understand the general squeamishness with equities these days.\u00a0 The same Barron\u2019s article noted that the average daily move in the S&P 500 was 1.44 percent in the second half of 2011.\u00a0 That\u2019s nearly double<\/em> the 0.75 percent average that has prevailed since 1928.<\/p>\n

Still, when I see this kind of pervasive fear in the market, particularly among those who should normally be aggressive, I can\u2019t help but be bullish.\u00a0 Bearishness has reached the level of the absurd.<\/p>\n

For the past two years, I\u2019ve advocated investing in high-quality, dividend-paying stocks, and I continue to recommend these as the bedrock of a portfolio.\u00a0\u00a0 The alternatives for most conservative investors are sparse.\u00a0 Cash pays nothing in interest, and most bonds pay only slightly more.\u00a0 Meanwhile, the cash levels of U.S. companies are at an all-time high, and dividend payouts are hovering near all-time lows.\u00a0 Conservative investors can assemble a portfolio of stocks that will out-yield a bond portfolio today<\/em> and that will almost certainly benefit from rising dividends in the years to come.<\/p>\n

For more aggressive investors, the time has come to \u201crisk up\u201d by buying the sectors that took the biggest beating in 2011.\u00a0 I am bullish on Europe (see \u201cGoing Long on Two Euro Stocks<\/a>\u201d) and emerging markets (see \u201cEmerging Markets Will Make a Comeback in 2012<\/a>\u201d).\u00a0 And while I don\u2019t make a habit of recommending commodities, I would have to add commodities to my list of cyclical sectors likely to do well in 2012.<\/p>\n

If you liked this article by Sizemore Insights<\/em>, you\u2019d probably enjoy The Sizemore Investment Letter<\/em>, our premium members-only newsletter. Click here<\/a> for more information.<\/p>\n","protected":false},"excerpt":{"rendered":"

By The Sizemore Letter Barron\u2019s ran a featured story by Kopin Tam in last weekend\u2019s edition titled \u201cJust Don\u2019t Lose It\u201d that was telling.\u00a0 Tam pointed out that, even after the best January in well over a decade, investors weren\u2019t embracing equities, and neither were their financial advisors.\u00a0 Only 44 percent of financial advisors planned … <\/p>\n

Continue reading “Risk Aversion Ad Absurdum”<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-27171","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/posts\/27171","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/comments?post=27171"}],"version-history":[{"count":0,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/posts\/27171\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/media?parent=27171"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/categories?post=27171"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/tags?post=27171"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}