tag:blogger.com,1999:blog-7366878066073177705.post8611142484799771764..comments2024-02-09T18:16:45.614+00:00Comments on The Psy-Fi Blog: Mental Accounting: Not All Money Is Equaltimarrhttp://www.blogger.com/profile/06254802085744425067noreply@blogger.comBlogger2125tag:blogger.com,1999:blog-7366878066073177705.post-57905158345524805312009-12-10T23:23:35.134+00:002009-12-10T23:23:35.134+00:00Hi Rob
I don't entirely agree with that, but ...Hi Rob<br /><br />I don't entirely agree with that, but mostly the arguments are academic in that I don't think we know enough to decide one way or another with enough certainty to say we're certain. So my opinion is no more than that, opinion.<br /><br />However, having spent a lot of time researching it I'm pretty much sure that educating anyone, no matter what their class, about this stuff isn't enough. For what it's worth that's a reversal of the position I originally adopted here. Unfortunately I don't (yet) have anything to replace it with, but I am looking ...timarrhttps://www.blogger.com/profile/06254802085744425067noreply@blogger.comtag:blogger.com,1999:blog-7366878066073177705.post-27692440267990845172009-12-10T11:33:53.548+00:002009-12-10T11:33:53.548+00:00My take on the equity risk premium is that there i...My take on the equity risk premium is that there is no such thing. I don't believe that stocks pay a high average return because investors "demand" this. I believe that stocks pay a high average return because stocks ultimately must pay whatever return is justified by the productivity of the U.S. economy and the productivity of the U.S. economy has always been strong enough to finance a high average return.<br /><br />The mystery is why non-stock asset classes pay so much less. There really <i>is</i> a market process setting the returns of bonds and certificates of deposit and so on. If investors had confidence that they could obtain 6.5 percent real from stocks, market pressures would push the returns for the alternative asset classes higher. The correct way to say things (in my view!) is not that there is an equity premium but that there is a non-equity penalty.<br /><br />I believe that the non-equity penalty exists because of stock volatility. If we did away with volatility (I believe this can be done by educating middle-class investors about the realities of stock investing), the non-equity penalty would go away. Stocks would be less risky than they are today and all other asset classes would have the same risk but would pay higher returns! Neat, huh?<br /><br />RobRob Bennetthttp://arichlife.passionsaving.comnoreply@blogger.com