Time to Get Your Money Out From Under the Mattress

Many beginning investors today think that now is the time for cash. I couldn't disagree more.

Cash, of course, means moving investments to money market funds, bank certificates of deposit, passbook accounts, or under mattresses. Investors who do that run scared rather than make prudent investment decisions. Their risk aversion boosts the equity risk premium, or the excess return of stocks over bonds.

And many investment professionals are taking advantage of it, which I learned while listening to a conference call held by four of the chief investment gurus at the Oppenheimer Funds at the end of September. They believe that currently investors are adamant to avoid risk and that risk aversion creates opportunities for savvy investors.

Let's look first at the equity risk premium, which is often misunderstood. It measures the return from stocks minus the return from bonds. People are often confused by the equity risk premium because it is measured by looking forward -- at expected returns. So when we talk about the equity risk premium, what we mean is how much excess return we might expect from stocks over bonds in the future. ...