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Earnings season seems to be off to a promising start. So far Alcoa (NYSE: AA) cut enough costs to get back into profitable territory and same-store retail sales are up collectively for the first time since last year. This sounds good and the major market indexes are up on the news reaching mid-September's resistance levels. A break here could turn into another extension of the rally. However, should investors be moving more heavily into stocks?
This is an important question during a bull-run when the excitement of big gains and positive earnings is in play. Some historical analysis could be useful when thinking about this problem.
According to the Fed's Survey of Consumer Finances; from 1989 through 2007 the top 10% wealthiest investors doubled their holdings of income investments like bonds as well as a dramatic increase in stock holdings. By no coincidence the wealth of the top 10% doubled in value over that period.
The other 90% dumped all of their bond holdings to statistically insignificant amounts over that same period and increased stock holdings marginally. Not surprisingly this group's wealth grew by barely a third of the top 10%. The survey will be conducted again in 2010 and I suspect the differential will have grown through the recent crisis.
The point of my comments are that stocks are exciting but they haven't returned much in terms of prices gains over the last 10 years. If you fit anywhere in the "bottom" 90% of investors this is as good a time as any to consider the value of stocks AND other investments within a well managed portfolio.
John Jagerson is an analyst and writer for Learning Markets, LLC
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