Public beliefs about long term investment returns from different asset classes

Staggering (to me anyway) study out from Gallup a couple of weeks ago about the public’s beliefs about which asset classes offer the best long term investing returns.
When asked “which of the following do you think is the best long term investment?” 34% of the 1000-odd telephone interviews picked savings accounts with 33% picking real estate. Stocks and mutual funds crept in at a lowly 15% (see below).
Beliefs of Americans about investment returns from different asset classes

Beliefs of Americans about investment returns from different asset classes

The thing that has bothered me over the years about investing in low cost equity tracker funds which eliminate all that stock-specific risk and have historically performed far better than any other asset class, is that they seem like such a no-brainer. Surely it is so obvious that everyone can see this with average actively managed fund performing worse than low cost passive vehicles?

And if everyone can see this then isn’t there going to be a whole pile of ‘dumb’ money piling in driving index constituents to ever higher price earnings multiples, whilst ignoring the fundamentals of these stocks? Who’s going to be left to actually look at individual stocks to do the number crunching to really evaluate their value?

Ok, I realize that nobody ever went broke (particularly casinos) by basing their business on the public thinking they were cleverer than the average Joe but still? Admittedly there is also a lot of rubbish quoted out there that makes it look like stocks do not offer good long term returns. One of my pet hates is writers just quoting the index e.g.

“the S&P is back where it was 10 years ago”

and the writer not realizing that, for example, (from Standard and Poors) dividend income has represented roughly 1/3rd of the monthly total return on the S&P 500 since 1926, ranging from a high of 53% during the 1940s to a low of 14% in the 1990s (when investors focused on growth).

But there is also a huge amount of very compelling research identifying long term returns on different asset classes…

It looks like I needn’t have worried about crowd mentality when it comes to trackers looking at this survey though!  Sadly another thing that stands out about the Gallup results is that lower income investors are more likely to view savings accounts as better investments (obviously imposing an inherent ceiling on their growing their personal wealth) although equally oddly higher income investors believe most in investment in real estate!

The study also bears out that  we investors are so into driving by looking into the rear vision mirror … with equities (now that they represent better value) falling in popularity by 15% or so over the last 2 years (the same survey has been carried out since 2003) and bonds and cash which have performed better over the same period (despite the forward inflationary risk with a wall of government debt bearing down on us) becoming much more popular…

Posted under index trackers, investment strategies

This post was written by mike on June 3, 2009

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