FORECASTS & TRENDS E-LETTER
by Gary D. Halbert
November 26, 2019

IN THIS ISSUE:

1. Many Baby Boomers Are Over-Allocated to Stocks… & Risk

2. 54% of Americans Own Stocks, But Top 10% Dominate

3. By Comparison, How Much Do Institutions Invest in Stocks?

4. More Alternative Investments Now Available to Individuals

Overview

A recent study from Fidelity Investments found that many Baby Boomers, aged 55 to 75, have too much money allocated to stocks, especially in their retirement accounts. The study concluded that over one-third of Baby Boomers are over-exposed to stocks in their retirement accounts; almost one-fourth of all retirement account savers are over-allocated to equities; and nearly 8% of Baby Boomers have 100% of their savings in the stock market. That’s astonishing!

The problem with having too much money allocated to stocks should be obvious: Losses will be exaggerated when the next bear market rolls around – and it will roll around.

The last decade has been a spectacular period for stocks, with the S&P 500 Index averaging over 13% annually. With interest rates falling to historical lows over the same period, it’s not hard to see why equities have become so popular among investors. Growth alone could put many investors at over-allocated levels, not to mention additions to their accounts.

My main investment theme this year has been that individual investors should invest more like institutions and diversify their portfolios beyond traditional stocks and bonds. Most large institutions (college endowments, insurance companies, pensions, etc.) have well under half of their portfolios allocated to stocks and instead diversify with so-called “alternative investments” that often do not include traditional stocks or bonds.

Many investors believe they cannot invest like institutions because they don’t have millions of dollars. Yet the truth is, you don’t need millions to invest like institutions. Today there are more alternative investments available to individual investors than ever before. Our specialty at Halbert Wealth Management has always been finding and evaluating alternative investments and making them available to our clients. That’s what we’ll talk about today.

Many Baby Boomers Are Over-Allocated to Stocks… & Risk

Earlier this month, Fidelity Investments released the findings of its latest analysis of retirement savings trends and investment behaviors across more than 30 million accounts. Among their many findings, perhaps the most surprising was the fact that many Baby Boomers have more money in stocks than is recommended for their age group.

Specifically, nearly 38% of Baby Boomers have too much retirement money invested in equities, along with nearly 8% who are 100% invested in stocks and stock funds (especially “target date” funds).

And if they’re over-allocated to stocks in their retirement accounts, where they tend to be more conservative, then it’s a safe bet that they are even more over-invested in their non-retirement accounts. I also read elsewhere that Millennials are over-invested in stocks. Fidelity noted:

“While the market’s performance over the last few years has had a positive effect on many retirement account balances, it may have also contributed to some individuals having more stock than is recommended [for their age]. Maintaining the right balance of stocks, bonds and cash can help ensure investors are not exposing their savings to any unnecessary risk, especially if the market was to trend downward.”

What the Fidelity study does not address is the fact that many investors, not just Baby Boomers, are adding more and more to their equity allocations because they increasingly believe that stocks are the only game in town. In the investment business, we refer to this as “chasing returns” or “herd mentality.”

Many have decreased their allocations to bonds and fixed-income because they feel that interest rates can’t go much lower. And remember, we’re only talking about retirement accounts so far. Now let’s look at the bigger picture.

54% of Americans Own Stocks, But Top 10% Dominate

The latest data we have on stock ownership came from Gallup in September. It reported that as of April of this year, 55% of American families owned stocks, either directly or through a fund. FYI, that’s down from over 60% before the financial crisis of 2008-2009. Many families bailed out in 2008-2009 and have never gotten back in.

Yet the 54% ownership figure is misleading, as we will see in the chart below. A 2017 study by New York University found that 84% of stocks are owned by the wealthiest 10% of Americans.

As of early 2019, the top 10% of Americans owned an average of $969,000 in stocks. The next 40% owned $132,000 on average. For the bottom half of families, it was just under $54,000, according to research by New York University economist Edward Wolff.

We’ve seen over a 200% rise in the S&P 500 from 2009–2018, meaning that serious wealth has been made by the most affluent Americans. What’s even more astounding is that the top 1% of households by wealth owned nearly 38% of all stock shares and equity funds. This explains why the so-called “wealth gap” continues to widen.

By Comparison, How Much Do Institutions Invest in Stocks?

To this point, we have established that millions of Americans are over-invested in stocks and stock funds. Now let’s take a look at how much a sampling of large institutions has allocated to equities.

To illustrate this, I selected four well-known university endowments that control hundreds of billions in assets. They are managed by some of the smartest and most capable money managers on the planet. They are:

1. Yale Investment Office
2. Harvard Management Company
3. Stanford Management Company
4. MIT Management Company (MITIMCo)

I want you to focus on how much (or how little) these giant institutions have allocated to stocks. I think you’ll be surprised. And I think you’ll be surprised at their performance results as compared to the traditional 60%/40% split between stocks and bonds.

The data in this chart likely surprised you. MIT has almost 50% of its assets allocated to “alternative investments,” including foreign equity, private equity, absolute return strategies, and real assets. Harvard has 58% of its assets in alternatives. Stanford and Yale have 66% and 76.4%, respectively, in alternatives. Those statistics surprised even us! Take another couple of moments to study the above chart.

Alternative Investments: Diversifying Beyond Stocks & Bonds

When we talk about “alternative investments,” most investors think of things like real estate or precious metals, and maybe a few other investments which are generally only available to institutions and ultra-high net worth individuals.

Yet the truth is there are more alternative investments which are available to individual investors today than ever before – if only they knew where to find them.

Let’s begin by defining alternative investments, which often mean different things to different people. Generally speaking, most successful alternative investments have three desired characteristics:

1. Low correlation to stocks and bonds;
2. Lower volatility over time; and
3. Consistent absolute returns

So, what are some of the most popular alternative investments today? Here are some examples, just to name a few:

• Private Equity Lending
• Real Estate Lending
• Insurance-Linked Assets
• Advanced Options Strategies
• Quantitative Long/Short Strategies
• Alternative Fixed Income

These are just a sampling of the alternative investments available to individual investors today, and more are being introduced as the demand grows. At Halbert Wealth Management, we have made it our business to seek out successful alternative investments to offer our clients, in addition to the more traditional strategies.

More Alternative Investments Now Available to Individuals

Many mainstream investment firms are not likely to steer you toward alternative investments. Why? In some cases, they don’t know how to find them; in others, they don’t understand them.

At Halbert Wealth Management, we do understand how alternative investments work, and we know how to find them. From our founding over two decades ago, we have made it our business to find successful alternative investments and make them available to individual investors like yourself.

It used to be that we had to seek out these successful alternative investment managers ourselves. And we still do. But increasingly, we do not have to look for them. Why? As we have grown in size and reputation, the successful alternative managers often come to us.

Once we find a potential investment candidate, we do all the heavy lifting for you. Each investment is subjected to our extensive due diligence process before we make it available to our clients.

Now, you are probably thinking, “There’s no way I have enough money to invest like the pros at Yale, Harvard, Stanford or MIT.” In the past, this was often true.

But not today. In fact, there are more alternatives available to individual investors than ever before. Of course, some of the investments are designed for larger portfolios, but most are very approachable.

In short, we offer the opportunity to invest like the large institutional players, the smart money, with a fraction of the capital the big boys have at their disposal. We offer investment strategies in all of the alternative categories listed above.

If you are over-invested in stocks and subjecting yourself to too much risk, especially when the next bear market rolls around – and it will roll around – consider diversifying with alternative investments like the smart money does.

We are just a phone call away at 800-348-3601, and one of our non-commissioned Investment Consultants will be happy to help you build a customized portfolio to fit your goals and risk tolerance.

Finally, let me wish you and yours a very Happy Thanksgiving. We have so much to be thankful for in this country. Our kids and their spouses and some other relatives are coming to our house for Thanksgiving. I’ll be cooking deep fried turkey and dressing and sides, as usual, and we’re looking forward to a great weekend. Thank you for reading me, and I wish you all the best!

Happy Thanksgiving Everyone,

Gary D. Halbert

SPECIAL ARTICLES

How to Invest Like an Institution (must read)

Fidelity Warns Baby Boomers to Stop Piling Into Risky Stocks

Gallup: What Percentage of Americans Owns Stock?

Gary's Between the Lines Blog: The Warren/Sanders "Wealth Tax" Is Unconstitutional

 

Forecasts & Trends E-Letter is published by Halbert Wealth Management, Inc., a Registered Investment Adviser under the Investment Advisers Act of 1940. Information contained herein is taken from sources believed to be reliable but cannot be guaranteed as to its accuracy. Opinions and recommendations herein generally reflect the judgement of the named author and may change at any time without written notice. Market opinions contained herein are intended as general observations and are not intended as specific advice. Readers are urged to check with their financial counselors before making any decisions. This does not constitute an offer of sale of any securities. Halbert Wealth Management, Inc., and its affiliated companies, its officers, directors and/or employees may or may not have their own money in markets or programs mentioned herein. Past results are not necessarily indicative of future results. All investments have a risk of loss. Be sure to read all offering materials and disclosures before making a decision to invest. Reprinting for family or friends is allowed with proper credit. However, republishing (written or electronically) in its entirety or through the use of extensive quotes is prohibited without prior written consent.