I once had a salesman who said, "Economists are like a broken clock, they are right twice a day." My digital ones are right at noon and midnight. That old blinking "12". The call for a market meltdown seems to be the fall back when all else fails.However, investors now have the fewest choices as to where to place their money in the past few decades. At least that is how they are behaving. The search for yield, income and growth has been reduced to the equity markets. Fixed income has the Sword of Damocles and the fancy hybrid securities have been shunned since the CDO/CBO/EI, EI,O.... markets blew up.
There is a dedicated investment group that invest in the equity markets like clock work. The place their new cash and earnings into the stock market on a bi-weekly basis. The superannuation or ERISA type retirement funds are a major player in the investment markets. Their growth has been phenomenal and their influence has grown dramatically. Unlike pension funds, however, there is no single controlling investment agency. No "Boss Hog" or Union Representative to control the placement of the money. Every two weeks employee paychecks are reduced by the "401k Contribution" Plan (or equivalent such as 403b for public employees, etc) . Every month, the earnings from the Plan are reinvested and the snowball grows and grows.
According to the Vanguard How America Saves 2013 Annual Report, "Defined contribution (DC) retirement plans are the centerpiece of the private-sector retirement system in the United States. More than 80 million Americans are covered by DC plans, with assets now in excess of $4 trillion."
The role of automatic enrollment is also a contributing factor. From Vanguard, "The adoption of automatic enrollment has more than doubled since year-end 2007. At year-end 2012, 32% of Vanguard plans had adopted automatic enrollment, up 3 percentage points from 2011. In 2012, more than 50% of large plans had an automatic enrollment feature, compared with about 40% in 2007. More than half of all contributing participants in 2012 were in plans with automatic enrollment, although the automatic enrollment feature was applied only to new plan entrants in 8 of 10 plans. Seven in10 automatic enrollment plans have implemented
automatic annual deferral rate increases. Almost all plans with automatic enrollment (97%) default articipants into a balanced investment strategy—with 9 in 10 choosing a target-date fund as the default." If we assume Vanguard represents the norm in investing, this may not be a bad assumption, the monthly implications are huge.
This post lacked all the research I wanted but it is important none the less.
Stocks represemt value.
I had not been able to complete all the research for this post, however, the information provided should be sufficient to support my argument on a qualitative basis. Needless to say I would prefer a quantitative basis to support my theory. However, time and other demands do not allow. Look for a more through report in the next year with better data.
There is a dedicated investment group that invest in the equity markets like clock work. The place their new cash and earnings into the stock market on a bi-weekly basis. The superannuation or ERISA type retirement funds are a major player in the investment markets. Their growth has been phenomenal and their influence has grown dramatically. Unlike pension funds, however, there is no single controlling investment agency. No "Boss Hog" or Union Representative to control the placement of the money. Every two weeks employee paychecks are reduced by the "401k Contribution" Plan (or equivalent such as 403b for public employees, etc) . Every month, the earnings from the Plan are reinvested and the snowball grows and grows.
According to the Vanguard How America Saves 2013 Annual Report, "Defined contribution (DC) retirement plans are the centerpiece of the private-sector retirement system in the United States. More than 80 million Americans are covered by DC plans, with assets now in excess of $4 trillion."
The role of automatic enrollment is also a contributing factor. From Vanguard, "The adoption of automatic enrollment has more than doubled since year-end 2007. At year-end 2012, 32% of Vanguard plans had adopted automatic enrollment, up 3 percentage points from 2011. In 2012, more than 50% of large plans had an automatic enrollment feature, compared with about 40% in 2007. More than half of all contributing participants in 2012 were in plans with automatic enrollment, although the automatic enrollment feature was applied only to new plan entrants in 8 of 10 plans. Seven in10 automatic enrollment plans have implemented
automatic annual deferral rate increases. Almost all plans with automatic enrollment (97%) default articipants into a balanced investment strategy—with 9 in 10 choosing a target-date fund as the default." If we assume Vanguard represents the norm in investing, this may not be a bad assumption, the monthly implications are huge.
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| S&P 500 P/E Ratio | from Fisher Investments |
Stocks represemt value.
I had not been able to complete all the research for this post, however, the information provided should be sufficient to support my argument on a qualitative basis. Needless to say I would prefer a quantitative basis to support my theory. However, time and other demands do not allow. Look for a more through report in the next year with better data.
