Quote:
Originally Posted by bizaro86
On average, people's portfolio's are cap weighted, because by definition they have to be.
Umm, nope, to the bolded part. Obviously I haven't expressed myself very well. My point was that ON AVERAGE stock market investors made very little money so far this century. To those for whom that comprises their entire investing life, that causes a perception that stocks are an unattractive investment choice. That perception is likely incorrect, but explains why many are prepaying mortgages versus buying equities.
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Why does the average investor have to be invested in 100% equities? A reasonable investor would have allocations in other assets too. A more balanced portfolio didn't get raped as bad as the indexes in the early 2000s and in 2008. I don't have the stats on hand, but I would venture a guess that most 60% equities 40% bonds strategies beat 3% per annum over the past 'lost' decade.
Another thing to consider is asset diversification. The more aggressive one pays down their mortgage while eschewing financial assets the higher the exposure to the price of one asset in one real estate market. There are risk concerns of an asset base to consider too.