8/1/12 1:25 PM – What does the Long-Term Future Hold for Investors?

Bill Gross made some good points in his monthly missive called Cult Figures http://news.morningstar.com/articlenet/SubmissionsArticle.aspx?submissionid=150663.xml&part=1

The article argues that a portfolio equally split between stocks and bonds will produce a real return of 0% for a long time. It’s a good article, if a little depressing but Bill has in general done well with his long-term thinking.

If he is right, and he certainly has a chance, this would have profound implications for long-term investment strategy and allocation decisions.

Stocks might be bought more for dividends than appreciation as they were through the first half of the 20th century. Covered call writing might begin to gain more favor. Many will be increasingly tempted to do market timing. Some people will ramp up the riskiness of their portfolio to try and keep up. Alternative investments should get more attention. The sale of products geared to generating a stable payout would gain in favor and numbers.

401ks may need to include new investment options geared to this scenario. Enhanced index funds like PTRAX or the Wisdom Tree ETFs would be more popular. Hedge fund strategies like arbitrage trades and paired trades, flash trading, betting on currencies and so on that are hedge fund staples might be packaged in a way available to many investors. Hard assets from gold to land might do very well.

Bottom line – everything would be more complex than today and especially more so than 1980-2000 when most advisors entered the business. It would thin the ranks of advisors and at the same time mystify investors and prompt them to more seriously consider working with an advisor.

Or, it could be easy, especially for savers. If rates rise significantly as they did in the late 70s to early 80s then going back to putting money in the bank or money market account or short-term CDs might tempt many as they watch bonds and stocks do poorly while the return on their bank account keeps going higher.

I may expand on these thoughts in the August newsletter.