The dynamics of equity investing are changing and investors need to consider these changes when making investment decisions. Investors have pulled over $400 billion out of equity mutual funds since 2008, resulting assets of some of those funds being cut in half. Money has flowed into bond funds, but even more money (eight times as much) has been deposited into bank accounts, confirming investors’ apprehensions about the stock market. (“Investors to stock funds: Get lost,” USA Today, John Waggoner).
The migration of money from stock funds to bond funds to bank accounts started during the big bear market year of 2008, when the Standard & Poor’s 500-stock index lost 37% of its value, according to the article. Waggoner lists some information about funds that have lost substantial assets (citing Lipper):
- The American Funds’ Growth Fund of America went from $193.5 billion at the end of 2007 to $122.1 billion at the end of 2011, losing 12.5% the past four years.
- Fidelity Diversified International’s assets have fallen from $56.8 billion in 2007 down to $22.9 billion ? a loss of 31.7%.
- Dodge & Cox Stock’s assets fell from $63.3 billion in 2007 to $36.6 billion – losing 19% the past four years.
The remarkable thing is that investors not only withdrew money in 2008, but also in 2009 and 2010 when stocks rebounded, and in 2011 when the S&P 500 stock index didn’t lose anything.
The reasons for this, according to Waggoner, are:
- Older Baby Boomers are reaching their retirement years and are prudently reallocating assets to less volatile investments.
- Unemployment and the bad economy have forced many families to tap savings to meet current living expenses, and they are cashing out of stock funds first.
As noted above, bank deposits, including certificates of deposit, have grown in popularity as many investors say they will never feel comfortable investing in the stock market again.
Page Perry is an Atlanta-based law firm with over 170 years collective experience protecting investor rights and fighting Wall Street greed.