The Paralyzed Plutocracy: Five Reasons Why the Wealthy Aren't Feeling Better About 2009's Big Rebound in Their fortunes - The Wealth Report - WSJ

Interesting short post from the Wall Street Journal today.

From personal experience, I can tell you there is still a feeling of unease and concern among the clients and prospects with whom I have been meeting. True, most will acknowledge that conditions seem to be improving, albeit slowly, but are still reluctant to make any significant changes in their asset allocation away from a very conservative stance.

Besides the five reasons the article notes, I would add another: a feeling of frustration. For years investors have been told to invest in stocks for the long term, yet the S&P 500 is essentially unchanged since (gulp) 1998. Interest rates remain extremely low, however, especially on shorter maturity assets, and bank rates are mostly below 1% as well. Everyone is very aware that they need to make their retirement assets grow, yet the investment alternatives seem to be less than appealing.

In my opinion, the most interesting parts of the capital markets remain dividend-paying, higher cap stocks and longer maturity bonds. For investors with at least a modestly longer term time horizon (3 to 5 years), I think you can make a pretty good investment case for these sectors.

But I can empathize with the mood of the investor.

Here's my summary of the five points from the article (I have paraphrased the note):

1: Account values remain below where they were in 2007 - Rather than focus on the growth in account value over the past year, investors wistfully remember the "highwater" marks of a few years ago;

2: Reluctance to Realize Losses - a classic investment problem. Rather than realize the loss and move on, some are holding on hoping to at least breakeven - at which time they'll sell. In the meantime, there may be better opportunities elsewhere;

3: Very Few Are Truly Long Term Investors - most of us look at the last few months rather than the last few years;

4: Politics - correctly or not, there seems to be a feeling that the current administration is against high net worth individuals. Some are making investment decisions based not only economic or market trends but their own antipathy towards what is going on in Washington;

5: The Richistan Effect. While a millionaire may be wealthier than most, compared to their social circle they are feeling poor.

The Paralyzed Plutocracy: Five Reasons Why the Wealthy Aren't Feeling Better About 2009's Big Rebound in Their fortunes - The Wealth Report - WSJ