“Stocks and bonds aren’t good enough anymore” – Wall Street

Here’s what’s coming down the pike, high net worth investors, and don’t say you haven’t been warned. The powers that be in Wall Street’s massive asset management units have figured out a workaround for the problem of investors no longer willing to pay up for stock or bond picking. It’s called “Alternatives” and a major push is underway to communicate to you that a diversified portfolio, the kind that doesn’t cost a lot, is no longer “enough.”

Investment News has the latest form of this argument:

In the 1970s it made sense for investors to invest almost solely in stocks for risk and bonds for safety. But those days are long gone, according to Theodore Enders, senior portfolio strategist at Goldman Sachs Asset Management.

“It’s typical and even understandable to think about an investor’s risk tolerance based on stock and bond allocations, but that’s how they did things back in the 1970s, when things were a lot different than they are today,” Mr. Enders said Monday during a presentation on alternative investments at the Investment Management Consultants Association conference in San Diego.

Referencing the bygone days of fixed-income investing, when the market was largely made up of high-quality corporate bonds, Mr. Enders said that “investors still hear the word bonds and think of safety.”

“These days, you own things in your portfolio for some type of return, and that includes alternatives,” he added.

 

 

…and that’s when they wheel out the scale replica of the timeshare you’re about to buy. Just kidding. Barely. By the way, those references to the 70’s are being used because that’s the sort of grinding, long-lasting, miserable bear market that their target audience – rich boomers – remember best. It was their formative experience as young adults joining the workforce and watching inflation / high unemployment nearly tear the country apart. It’s a great touchstone to reference when you’re selling anything safe haven-y.

To be clear, I don’t have a strong opinion – positive or negative – on the use of alternatives.

On the one hand, conceptually speaking a portfolio should have aspects that offset each other. If delivered at a low cost and with reasonable expectations, an alt can accomplish a given mandate quite nicely. On the other hand, low cost isn’t exactly the raison d’etre of why this products are being pushed now. In fact, I would argue, it’s the opposite. Wall Street wants to fight Vanguard for some of their share back and they’re going to do it by selling pie-in-the-sky ideas about getting all of the upside, none of the downside. They’ll sell manager pedigree, exclusivity and sophistication, which is a house specialty.

The salesmen will answer today’s zeitgeist of low-cost, low maintenance portfolios not with something similar, but with something that is the exact opposite. And the marketing message will be that simple isn’t good enough, because conditions a, b and c are now so “different.” We heard much the same kind of thing in the wake of 2008 when they told us that it was a new era and buy-and-hold wasn’t ever going to work anymore either. Which, of course, promptly led to the greatest buy-and-hold bull market of all time.

So take these pronouncements with a grain of salt. No one knows whether or not stock/bond portfolios will be “good enough” anymore. We only know that they always have been, over a reasonable period of time, since the beginning of recorded market history.

This content, which contains security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment.

The commentary in this “post” (including any related blog, podcasts, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Ritholtz Wealth Management employees providing such comments, and should not be regarded the views of Ritholtz Wealth Management LLC. or its respective affiliates or as a description of advisory services provided by Ritholtz Wealth Management or performance returns of any Ritholtz Wealth Management Investments client.

References to any securities or digital assets, or performance data, are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.

Wealthcast Media, an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. Investments in securities involve the risk of loss. For additional advertisement disclaimers see here: https://www.ritholtzwealth.com/advertising-disclaimers

Please see disclosures here.

What's been said:

Discussions found on the web
  1. 10 Tuesday PM Reads | FAN FICTION PLANET commented on Oct 08

    […] “Stocks and bonds aren’t good enough anymore” – Wall Street (TRB) • American Banks Stockpile Treasuries as Deposits Top Loans (Bloomberg) • As Gross Joins […]