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Phew! I thought it was just me. But according to an associate who retreated from the mutual fund sales industry - NO ONE MAKES REAL MONEY OFF OF THE STOCK MARKETS. Sorry, excuse the caps. And very, very few investors who reside in the middle classes will retire due to the money generated from their investment portfolio or their investment philosophy. As Gordon Pape, a leading personal finance writer recently quipped on one of those business news shows … 'if you want to retire one day, my advice would be to get a job with the government'. Suppose you could marry a government worker as well. Ha.

And to clarify, no one makes real money off of the equity or bond markets, except those who produce or sell a financial product or provide financial advice.

And on those who sell advice, I would guess that most Financial Advisors earn their fees when they provide a financial plan, and help their clients avoid bonehead moves such as buying high and selling low, and also stopping clients from taking undue risk. Charging 1% or more on all of their clients' portfolio totals - well that can add up to real money.

So why no returns for the little guy, and girl?

The stock market is mostly long periods of losing money against inflation, punctuated by two rabid bull markets that saw equities reach giddy levels of extreme overvaluation. OK, cover the eyes of any squeamish investors who might be nearby and check out this chart.

(click to enlarge)

Truly scary, but hey it's almost Halloween, so why not. This graphic description of events, courtesy of thechartstore.com, is eye opening. You can see regular and extended periods where US equity markets delivered no real returns for periods lasting 20 to 25 years. That's a regular event; being flat in real dollar terms for 20 to 25 years, save for market timing plus dividends (dividends are not included in the above chart) and their reinvestment. That last equity black hole lasted 24 years.

Investors who've made real money off of the equity markets were fortunate by birth. No not by being born into a rich family (though that will help and is certainly recommended). I'm soooo jealous of those who were able to invest in equities during the 80's and 90's. The proverbial monkey throwing darts could have made a bundle. Even I could have picked a few winners back in the day. But not sure if I would have beaten Bubbles the Chimp.

For the rest of us chumps, it's an uphill battle. Factor in inflation, and we will rewrite history if we can generate real returns more than 3-4% from 2000-2020 or 2000-2025, or whenever this secular bear is slayed. And making retirement-inducing returns above inflation? As Aerosmith would sing 'Dream On'. What's more, the chart does not take into account taxes for those who are investing outside of a registered account. Our current nasty secular bear market began in 2000. For 12 years (an eternity for the average investor), many equity investors have made nothing or next to nothing, even as we sit near the highs of the last 12 years. To compound the issue, many investors got cold feet in 2008 and sold low. Investors are really good at buying high and selling low. See my first article for some chilling returns from those invested in the Magellan Fund during one of their great runs.

As we can see from the real return chart, using the SP500 broad index SPY, it usually takes 20-30 years to break even from the previous market peak. Equity investors may have to watch their portfolios slump and sometimes take a royal shellacking for another decade or more. Equity investors have had a tough time for the last 12 years. Even with the current surge in equity prices, investors are down from the peak, and have taken a hit (a real whack upside the head) from inflation. If the Portfolios were trucks, they'd be making that loud beeping sound to warn pedestrians that they're backing up. And if we look at the average time frame of the last three bear markets, we are likely just about halfway through. That's not a guarantee. But it's a risk all investors should address.

And it's likely why an all-stock portfolio or one that is very heavily weighted to equities continues to have its back against the wall. You can look the other way and just count your dividends. But certainly it hurts when equity investors sneak a peek at their portfolios' total value and returns. And more important than fear and squashed pride, an all-stock portfolio can delay or disable retirement plans. Total return is important. To hold non-correlated or less-correlated asset classes can provide opportunity. It can get you across the finish line. It's always a good idea to have something that's working in your portfolio. It's possible that if we stay in a bear market for another 12-15 years, investors could be much better off in a portfolio that holds bonds and gold AND equities. Of course, investors who've had a nice mix of equities and gold and bonds over the last 12 years have seen some decent returns.

Which brings us to another point. No one retires because of his or her investment skills or perseverance. People retire or semi-retire when they accumulate wealth by living beneath their means and having money left over after every pay cheque. After that it is about slowly growing your portfolio and investment income. If you can beat inflation by three or four points - good for you. So think about that real number. Your investment portfolio is only growing by 3-4% a year, if you're doing most things right. The most worthwhile investment advice one could give is 'save more'. Invest more. Be frugal. Do a budget. Don't buy those two $4 lattes every day. Think like a Scot. It takes a lot of money invested to fund a comfortable middle class retirement.

I will write that the long-term average stock market returns that are commonly stated are useless to most investors. Most of us get serious about investing and saving for retirement over a period of 15-20 years, even a shorter time period for many. Your peak investment years could take place entirely within an equity bear market.

Save and invest 20-30% of your income. Protect yourself against stock market collapses and portfolio volatility with bonds and gold and exposure to other currencies.

Check out the incredible phenomenon known as the Permanent Portfolio. The basic premise is to hold asset classes that protect against or prosper during periods of inflation, deflation, recession and robust economic growth. It holds, in equal amounts - 25% Equities, 25% Cash, 25% Long Treasuries, 25% Gold.

It is available in a fund with the symbol PRPFX. View the long-term chart and you can see that the Permanent Portfolio has delivered nearly 150% over the last ten years. Over the last 5 years, it is up 38%. And incredibly the Permanent Portfolio has seen only two very small down years in the last 40.

It is also available in ETF form - symbol PERM - a recent addition to the ETF world. Investors can also build their own Permanent Portfolio with equal amounts of SPY, GLD, TLT, SHY. Short-term Treasuries are often used as the cash component in PP construction - SHY in this example.

There is also a website dedicated to all things Permanent Portfolio, and its creator Harry Browne. Visit crawlingroad.com. Here's a chart from crawlingroad that says it all.

(click to enlarge)

The Permanent Portfolio clearly demonstrates how an investor (by holding and rebalancing multiple asset classes) can experience decent returns in any environment, all while greatly reducing stomach-churning volatility.

It almost makes real money.

Cranky aka thecrankywriter and the scaredy cat investor.

Source: Almost No One Makes Money From The Stock Market Alone

Additional disclosure: Please note that Dale Roberts aka crankyguy, the crankywriter, the scaredy cat investor is not a licenced investor advisor, and the above opinions should only be factored in to an investor's overall opinion forming process. Consult a licenced investment advisor before making any investment decisions. Please. Through ETFs I may hold positions in companies within SPY.