by Michael Tarsala
Don’t worry: Hades is not frozen, and bond king Bill Gross is not suddenly a stock lover.
As he has said before, Gross still thinks the cult of equities is dead, and that buy-and-hold is not a viable investment strategy.
Yet the latest missive from the PIMCO chief suggests that stocks can outperform bonds, even though he still thinks that stock returns will not be strong by historical perspectives.
Here is his advice:
If I were an individual investor, I would do this: Balance your asset mix according to your age. Own more stocks if you are young, but more bonds if you are in your 60s, like myself.
If you choose an investment advisor, a mutual fund, or an ETF, make sure that your fees are minimized. After all, if overall returns average 3–4% annually how can you possibly afford to give 100 basis points of it back? You cannot.
And be careful. The age of credit expansion which led to double-digit portfolio returns is over. The age of inflation is upon us, which typically provides a headwind, not a tailwind, to securities price – both stocks and bonds.
If you are an institution be cognizant as well of the above, but in addition, recognize that higher returns – from both stocks and bonds – usually emanate in countries and economies which exhibit higher growth.
And don’t trust any country, including the United States, to forever remain a clean dirty shirt.
To me, Gross’s latest missive makes the case for active investment management — having your money run by someone who is willing to take profits on winning stocks and cut losses short on the losing ones, provided you can get that service for a fair price.