Even a bull market can't spur interest in stocks

Investors are keeping the lowest percentage of their portfolios in equities in over half a century.

By MSN Money Partner Jun 6, 2014 2:35PM
Credit: © Image Source/Corbis
Caption: Bull and Bear MarketsBy Howard Gold, MarketWatch

How often have you heard some Wall Street shill talking about all the cash on the sidelines waiting to come back into the market? Or some pundit worrying that too many investors have rushed into stocks, signaling an imminent sell-off?

Well, now, we can safely ignore those claims and others like them. An authoritative new study published recently in the Financial Analysts Journal shows that all investors -- individuals and institutions alike -- are keeping the lowest percentage of their portfolios in stock in over half a century.

According to three Dutch researchers -- Ronald Doeswijk, Trevin Lam and Laurens Swinkels -- investors held only 37.7 percent of the $90.6 trillion in global investable assets in stocks in 2012, the most recent year their data covered.

That and the 37.1 percent they invested in equities in 2011 were the lowest exposure to equities investors have had since 1959, when records were first kept. It's considerably below what they held even in the late 1970s, before the Reagan-era bull market began, and in the early 2000s after the dot-com bubble burst.

In fact, there may be cyclical and structural reasons for this shift, according to Lam, senior analyst in quantitative research at Rabobank, based in the Netherlands.

"I do think that the changes in the global multi-asset market portfolio are cyclical," he told me in an email. "There are periods in which the weight of equities increases at the expense of bonds . . . [but after the dot-com bust] the weight of bonds rose quickly at the expense of equities."

Equity ownership peaked at around 64 percent of the total global market portfolio in 1968 and again in 1999, near the top of two great secular bull markets.

Yet it never exceeded 53 percent during the mid-2000s cyclical bull market. To me, 2011-2012's low numbers show that, though the Standard & Poor's 500 Index ($INX) and other indices are hitting all-time highs, investor confidence still hasn't recovered from the dot-com bubble and the financial crisis.

As I wrote here late last year, surveys showed a steep decline in the percentage of Americans who said they owned stocks or stock mutual funds.

But there are big structural changes as well, Lam told me.

First is the alternative asset revolution, pioneered by David Swensen at Yale University and Jack Meyer at Harvard.

University endowments and other asset managers have drastically reduced their holdings in traditional stocks and bonds, investing instead in such formerly exotic asset classes as private equity, hedge funds and timber land.

According to the study, the market capitalization of assets other than stocks, government bonds and investment-grade corporate credits (for example, real estate, high-yield bonds and inflation-linked securities) rose to 15.6 percent of total global invested assets in 2012 from 6.2 percent in 1990.

Hedge funds now manage $2.1 trillion, up eightfold from 1996, and private equity firms have more than $3 trillion in assets under management.

Also, pension funds and individual investors have gone through a massive "de-risking" over the past decade. That reflects not only fear of stocks' volatility but also big demographic changes.

An aging population worldwide -- U.S. baby boomers, of course, but also Europeans, Japanese and even Chinese -- is growing more conservative as it approaches retirement.

That's one reason U.S. individual investors went on a bond-buying spree from 2008 to 2012, pouring $1 trillion into bond funds while yanking $547.9 billion out of U.S. stock mutual funds.

The study pointed out that government and investment-grade bonds comprised 57 percent of the global portfolio in 2012, a 23.5-percentage-point increase since 1999.

(Lam couldn't tell me how much the global percentage of stock holdings may have increased in 2013, when the S&P 500 rose 30 percent-plus, but my own back-of-the-envelope estimate puts the current stock allocation in the low- to mid-40s.)

So what does this all mean?

First, even after five years of a spectacular bull market that has driven the S&P 500 up over 180 percent, irrational exuberance is nowhere in sight.

Far from inducing "free money" euphoria, the Federal Reserve's extraordinary bond-buying program (quantitative easing, or QE) has instead provoked deep skepticism from many investors -- and not just the doom-and-gloomers I've written about over the past couple of weeks.

In fact, that doom-and-gloom thinking itself may be part of the "wall of worry" keeping even more cash out of the market. By that reasoning, stocks could be headed a lot higher before this bull market ends.

But I'm concerned that structural changes -- institutions' push into alternative assets and the aging population's big shift into bonds -- mean that this bull market will end long before world stock holdings go back to their previous peaks at more than 60 percent of total assets.

Which raises one final question: Why is the financial-services industry still peddling the shopworn advice that individuals should be putting 60 percent to 70 percent of their assets into stocks on the verge of retirement, especially when even big institutions have drastically reduced their equity holdings?

Please let me know if you get a good answer, because I haven't heard one yet.

--Howard R. Gold is a MarketWatch columnist and founder and editor of GoldenEgg Investing , which offers simple, low-cost, low-risk retirement investing plans. 

More from MarketWatch

Jun 7, 2014 9:13PM
Duh!  That "corner" the "manipulators" have backed themselves into is fast coming. Boomers are done and have pulled out for the better part and want absolutely nothing to do with the "markets".  Gen X'r's do not have a pot to pee in, now.  Younger generations cannot add beyond 2+2, let alone think and their mommies and daddies are broke.  A "steep decline", huh!  You have not seen anything, yet. 
Jun 6, 2014 3:04PM
"Investors are keeping the lowest percentage of their portfolios in equities in over half a century."

Well when you talk about investors, you need to be darn clear just who the heck you are talking about. 85 People own half the Worlds Wealth.(correction- 85 Richest People In The World Have As Much Wealth As The 3.5 Billion Poorest). The World's current population estimated to be around 7Billion.

Most of these Folks are insiders that have CASHED out of their low cost or many times no COST Stock Options. So after getting back the Most Wealth in History thanks to the 3 Global Feds printing to the Tune of nearly $10Trillion, these folks have made their Money. Often times off the Labors of the 99%. These elitists are buying Hard assets as they know full well the Huge Bubble that we are in.

After making money in the manner that they have, they are more then happy to buy Bonds and wait for either the Bubble to Burst or herd the Sheep into their next Company IPO that makes nothing like Facebook or Twitter.

Then we see a Huge segment of the Population that is barely making it paycheck to paycheck. Rampant unreported inflation while wages are same or less of a Decade Ago.

So when you BS folks about thinking some so-Called investors being  Huge Cash on the Sidelines, be darn sure to take Facts like that into account. Huge Cash Hoards from Record Insider Selling. The ratio of sales versus purchases by chief executives, directors and senior officers at S&P 500 companies is more than twice the average ratio for the past 10 years.

Jun 7, 2014 10:25AM
We are very diversified. Mini bonds, stocks, precious metal mining stocks, and some cash.  What else can one do to make sure something works in the long run? One cannot listen to the experts. They don't know the future any better than us.
Jun 7, 2014 10:33AM
the financial services industry exists to make money for themselves...to think they have the investors interests in mind is a joke
Jun 8, 2014 4:34AM

"And there might be a correction...Who cares...??

The money that has been made by people with some GUTS and the ones that did their Research."

That's almost too Funny, just about any buffoon can make money in a Market pumped up continually by Central Feds since Great Recession and they have. Re-Tog is a bright guy, he is just avoiding the issues, like so many others. This isn't about who made the most nor the least, this about what is the price we shall eventually pay for printing Globally by 3 Central Bankers to the tune of $10Trillion and counting Fake Money. What happens when these Actual Buffoons, Central Banks, actually Monetize the Debt, because at the end of the Day, that will happen.

You can brag about making money when it's Organic, when it's not, folks should thank their Lucky Stars and you don't behave as it a Correction is some Big Joke. When Global Debt rises 40% since the Great Recession, a Major Correction could Trigger what some(few so-called Experts) have been calling for, a turn from the Mother of all Bull Markets to the Mother of all Bear Markets.

Warren Buffet gets special Deals, so he doesn't' have to play by the same Rules, as everyone else. Warren Buffet company is basically Labeled Too Big to Fail, Too Big to Jail. In other words, he got a Front Row Seat at the Welfare which is the Global Feds. Without that, even Re-Tog would say all this likely would not be possible. We have serious issues moving forward but very little serious discussions about those issues. Bears make money, Bulls make money, but eventually all PIGS get Slaughtered. To see that in Real Time, just ride along with Re-Tog to any Casino.

Jun 8, 2014 12:15PM
Could it be that people are tired of falling for the Ponzi scheme ? 
Jun 8, 2014 2:17PM
So if no one is owning stocks then who owns them?  Kind of a blowin' smoke article.  Watch the Fed for signs of a market downturn.  As long as they keep on giving free money to the big banks the market will continue upward.  The higher it climbs the lower it will fall.  And we all know who will bail out the big boys---Joe Taxpayer. 
Jun 8, 2014 5:05AM
Some sources quote that total buybacks since the beginning of 2005 to be well over $4trillion. However If a given share repurchase consumes too much of company's excess cash, the underlying businesses might end up failing or faltering, which could lower future returns and or even make the company far less competitive to overseas competition.

China's military spending exceeded $145 billion last year as it advances a program to modernize thus expand it's influence. China is soon expected to become the Largest Economy in the World. Euro-zone is turning to negative Rates. We have a debt interest Time-Bomb that most folks aren't even talking about.

One example of increased risk taking,Issuance of low-rated U.S. dollar-denominated junk bonds last year hit a record $366 billion, more than twice the level reached in the years before the 2008 financial crisis. We have no idea how deep of a Black hole risk taking in China has become. Japan has the Worst Debt to GDP ratio of any Major Economy. Britain is turning adding Whores, Drug Dealers, and whatever to boost their GDP numbers. Most of the Countries that have gotten a bailout have a economies that are shrinking along with the Organic Tax Base.

So we have Reality and those that feel it's better to stick their Head in Ground and say, but hey, as long as the Markets to continue to Rise, stating anything else is Doom and Gloom. Fact is, Not dealing with serious problems leads to Doom and Gloom, not the other way around.

Jun 9, 2014 7:48AM

Why do we own stock? If a company does not pay you part of the profits why own the stock at all? Do we own stock in the hope that someone will pay more for it later? Why should they? The idea that a stock is worth something because the company makes money is flawed. The only way that makes sense is if they pay you a dividend. Without a dividend the stock is worth nothing more than the paper it used to be printed on. If a company goes out of business, are you going to see any money from that investment? Are you going to see any money from the assets it sells? Stock is only worth what someone else is willing to pay for it. It's that simple.

Jun 9, 2014 7:45AM
Smart people know better than to go heavy into stocks now.
Jun 8, 2014 9:49AM
I am always in the stock market even in a downturn. Now the market is starting to recover from 2008-2009 and people are afraid to go back in. They should never have left. I have many friends who hold "safe" bonds. Well, I have news for those people, bonds are a giant bubble waiting to burst. Interest rates only have a 2.5% possible downside and unlimited upside. When rates go up bond value goes down. This has happened before and it will happen again. Back in the 1980's when rates went up so much I lost my shirt in bonds. Be ware of the bond bubble or the double B as I call it. Then when the average guy on the street starts getting into stocks and talking about stocks thats the time to pair back on stocks. The average guy is usually late to the party because they dont do their research.
Jun 7, 2014 2:35AM
The Mick states, "The article doesn't mention how it is possible for the S&P 500 to rise so dramatically from March, 2009 to now while a lower percentage of people invested in stocks and $547.9B was pulled out of the market. Obviously, the market has risen in value much more than stock buybacks account for.  So what's pushing the market up."

Over $150 billion in S&P500 stocks buybacks executed in the first quarter. That's a pace of $600Billion for the Year.

Corporations have authorized more than $453 billion in repurchases this year, third highest annual total behind 2006 and 2007. Buybacks lower the next year.

Buyback for S&P500,  $399 billion.

S&P500 estimates that 2013 buybacks top $482 billion.
The record year for buybacks was $589 billion in 2007.
Dividend payments in the S&P 500 set a new record this 2013: $310 billion ( $282 billion in 2012).

Jun 8, 2014 3:53PM

There are plenty of people investing,...You just have a tendency, not to realize it on some of the Sites like this one...Too many on here "are NOT talking about stocks or investing", much of the time anything but....Plus they choose NOT to BELIEVE there is a Recovery...??? Sweet Geezus, man...

Do you only read the Doom and Gloom here, and LISTEN TO TALK RADIO...??

Sure the Big Boys, like Buffet get better deals....But he's not a chicken chit...And he rode most of the downfall, to the bottom, THEN rode it back UP...Buffet makes mistakes like all investors, and begrudgingly he admits it also.....But he didn't run, like many in America did, and then they lost their azzes twice...

Many Foreigners are investing again in America; It seems to be the best place to put your money RIGHT NOW...??

We invest in MOSTLY AMERICA, we have done very well in the Recovery...

And it seems more and more every month, MAIN STREET is Recovering BETTER also... 

Is there going to be a correction...??  Probably, BUT that may be your chance to come back into investing slowly??

Is there going to be a Crash..?, I seriously doubt it....Not in the near future anyway...But if you re-allocate, re-adjust and are pro-active....You can make money just like the Big Boys, just not as much. 

Is it RIGGED...??  Hell, everything is rigged a little or a lot...Just INCREASE your ODDS.

There are dozens of ways to invest or save, so do your research and plan for your future..

The choice is yours..Be somewhat positive, it may make all the difference in your life and future?

Jun 8, 2014 1:58PM
So after the tricks,games ,and achemes that have defrauded the inverstors and the investor public,  causing them huge unnecessatry losses  worldwide because playing it straight is so unreasonable for the market ,you wonder why people are reticent to invest? Rig and play the market deceptivly and no one wants to play with you cause you cheat!!!. As Yago the Parrot put it  in Alladin,"Why am I not surfprised!!!!"
Jun 6, 2014 3:28PM
37.7 percent of 90.6 trillion is 34.1562 trillion dollars invested, that's no interest, really? You've got to be kidding, this article is stupid!
Jun 6, 2014 9:10PM
The article doesn't mention how it is possible for the S&P 500 to rise so dramatically from March, 2009 to now while a lower percentage of people invested in stocks and $547.9B was pulled out of the market.

Obviously, the market has risen in value much more than stock buybacks account for.  So what's pushing the market up.

Jun 7, 2014 11:25PM
It took that long as now we have the button pushing "experts" coming in and for a reason.  Keep the "flow" going!  Hilarious!
Jun 8, 2014 2:54PM

In the end, the only green that matters is soylent green.

Jun 8, 2014 1:55PM

Well, to be "flippant about a correction" probably isn't my true feelings...No one really cares for a correction or a "crash" in the Markets.....Or they shouldn't want to see one, unless they are nuts.

But to constantly hear the "droning" on and on, and the doom & gloom on here many times a day or weekly...Gets to be old crap...So, all I do is take the contrarian viewpoint, for my own selfish reasons.

Small corrections in the Markets usually present some "buying opportunities" for serious investors.

If people are on here and are not investors, makes little sense to me;

Even if it's only a 401K, they are still an investor of sorts, saving for probably a retirement or maybe a special purchase later in life..??

If you have no interest in investing or reading about financial ideas; Makes LITTLE SENSE why you would be on HERE at all....Somewhat "moronic" to me...And shows Stupidity...??

After all this is the MSN MONEY Site, and the "TOP STOCKS" Section...

No one really gives a damn whether.....

You won't NEVER go to McDonalds again...

Can't stand WalMart...

Won't buy a GM vehicle ever again...

You are a Democrat or a Republican..

And/or want to Blame "all your problems" and "everything else" on Bush or Obama...??

Most don't really care, what most of us think or do; And we are only 1 of Billions..

So get a grip, some need to get a life, go out and smell the flowers or go fishing....

I stop by here for the humor and lunacy, maybe a few good ideas or viewpoints and I am usually on my way to something else, or doing a little research..

I'm "retired" and have 24 hours a day, to do whatever I want.

And doubt that many of you can change me in my life, or what I do...NOR I change you...??

Jun 8, 2014 12:15AM

Re-Tog is right on schedule with his multiple nicks.  Check out the time-line, below in my posts, latest.  He is a serious ideologue and a "plant", here. He needs to not be so obvious.  He has no validity and all can check out what have said.

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