Renewed economic uncertainty is testing Americans’ generation-long love affair with the stock market.
Investors withdrew a staggering $33.12 billion from domestic stock market mutual funds in the first seven months of this year, according to the Investment Company Institute, the mutual fund industry trade group. Now many are choosing investments they deem safer, like bonds.
If that pace continues, more money will be pulled out of these mutual funds in 2010 than in any year since the 1980s, with the exception of 2008, when the global financial crisis peaked.
Small investors are “losing their appetite for risk,” a Credit Suisse analyst, Doug Cliggott, said in a report to investors on Friday.
This is what happens when the shearers stop fleecing the sheep and start skinning them…the sheep stop standing there in a docile stupor. The good news is that the CEOs of the companies that do this will also have their stock portfolios value plummet.
To use some more metaphors, when you kill the chicken, you don’t get any more eggs. If you eat the seedcorn, you won’t have a crop next year. This is what the bankers and AIG/Enrons have done.
Voters should do some really deep research on who makes campaign contributions to their candidates and on just who is providing income and gifts to members of each candidate’s family.
#1, I’m not sure it is the corporations or their managers that small investors are concerned about. First, many folks pulled money out of 401(k) accounts to live on, which thereby pulled money from equity investment. But, second, as a small investor, my main concern has been what the Fed gov’t is going to do to the companies on the stock market by regulation and what it is going to do regarding taxes (individual and corporate) next year. Congress and BHO will mainly determine if the economy and stock market will grow, like no other administration has since FDR. So I think everyone is readjusting their portfolios (usually from 60-40 to 50-50) in a wait and see posture, and they are not putting any more money in at present. For those depending on those 401(k)s and who want to retire sometime before they die, this is a scary time, and the present administration doesn’t seem to care at all or even recognize what it is doing to those who have been responsible for themselves and saved for retirement, but are in danger of losing substantial portion of what they have saved (after already losing a significant portion in 2008-09).
This kind of report always bothers the MBA/statistician in me. 33 billion is indeed a whole lot of money, but when I checked the total US investment in mutual funds… [blockquote]As of October 2007, there are 8,015 mutual funds that belong to the Investment Company Institute (ICI), a national trade association of investment companies in the United States, with combined assets of $12.356 trillion.[/blockquote]. So, what happened is that 1/4 of 1% of the money in mutual funds was withdrawn. 1/4 of 1% is not staggering, nor is it an indication that “small investors flee”. People are opting for more conservative investments, which is to say, they are getting out of biotechs and startups, where small investors are not advised to invest in the first place, and going to balanced funds which make more sense in any case. It is rational portfolio adjustment, not a panic. And probably paying off some debt as well, also a good idea.