Why do professionals push stock-heavy portfolios?

[KevinW]

Why is it that finance professionals overwhelmingly push stock-heavy portfolios?

Mutual fund companies and wealth managers are typically paid as a percentage of assets. I'd expect they'd want a stable cash flow, and thus for their clients' asset values to remain relatively stable. So I'd think the pros would usually push conservative, low-volatility portfolios. Which I believe would generally be in clients' interests.

Expensive bond funds have ERs that are just as bad as expensive stock funds. So they don't push stocks just to skim larger ERs.

So: why do they push stocks so much?

[moda0306]

One guess... to justify their existence.

Bonds are boring and offer weak return... stocks are mysterious, but you better let me hold your hand through the ride.

[stone]

I think it is a play on the idea that gains "could" be very large. Also clearly some people harvest a tremendous amount from holding stocks. What is left unsaid is that they use HFT or whatever to capture all the volatility. People see Wall Street rolling in money and want a bit of that. Basically stocks are the most complex investment class and so offer the most cover for bamboozlement. People also imagine that their money is "doing something" whilst they are holding stocks and so they are "being paid to take risk" etc etc.

[dualstow]

So: why do they push stocks so much?

More room for churn?

[MediumTex]

Why do barbers push haircuts?

Wall Street makes money on an IPO, they make money buying and selling shares post-IPO, and they make money when the company is bought or acquires other companies.

Most of that stuff doesn't have any analog in the bond market.

[moda0306]

To understand the stock market, you MUST understand the bond market, as it's based on much more simple principals, and they compete with each other as investments.

To understand the bond market, you MUST understand macroeconomics and money, as the issuer of the currency in question is most often the starting point from which all bonds are built.

How often do you encounter a financial planner that you feel understands macroeconomics and money?

Heck, I don't even feel like I really do.

[KevinW]

So --- Wall Street lures naive investors into equities so there's more fodder for their opportunistic plays in the stock market, e.g. IPOs and HFT? The profits from that arm of the business outweigh the costs of disappointing clients who feel burned by volatile portfolios?

[Storm]

They push stock heavy portfolios because the people writing their paychecks get paid transaction costs on every trade.  Bond portfolios don't trade often- they tend to buy and hold.  Stock portfolios are perfect because the fund managers are constantly trading and doing silly things like "window dressing," which is the act of selling a bunch of losing stocks and buying winners on the last day of the year so that your prospectus will show holdings that have gained a lot in the last year.

[stone]

So --- Wall Street lures naive investors into equities so there's more fodder for their opportunistic plays in the stock market, e.g. IPOs and HFT? The profits from that arm of the business outweigh the costs of disappointing clients who feel burned by volatile portfolios?

Is it possible that the advisors themselves are swept along by themes that are pushed from higher up the food chain? So perhaps an advisor might theoretically be able to make serving his clients well pay well BUT all the industry literature etc is slanted to coopt the advisors into manuvering clients into buy-high-sell-low predicaments with stock portfolios.