Small investors fleeing stocks?

There's no question that they're loving bonds. But are they really dumping equities?

By Kim Peterson Aug 23, 2010 5:06PM
Stock Market © Getty ImagesAre small investors ditching stocks, having had their fill of financial chaos?

That's what you might think if you read this New York Times article titled "In striking shift, small investors flee stock market."

But wait. On the same day, the Los Angeles Times published an article called "Still in stocks? You're hardly alone."

So are investors sticking with stocks or not? It took some digging to find out that the two articles came to seemingly opposite conclusions using two different sets of data.

For much of this year, the market has made no sense. Even the most seasoned investing professionals are getting burned. Many investors, large and small, have responded by heading over to bonds.

But has that been at the expense of stocks?

The New York Times reports that investors have withdrawn $33 billion from U.S. stock market mutual funds so far this year. If this exodus keeps up, then 2010 will see the second-highest outflow of funds in two decades (2008 had the top spot).

In normal times, you'd have a rush of money going into mutual funds at this point in the economic cycle, one economist told the Times. People would be cheered on by the solid corporate earnings we've seen this year. Investors would be keen to clean up as the economy improves.

Here's the rub, however: The New York Times analyzed only U.S. equity funds in its report, and it included numbers for the first half of the year and estimates for the month of July. The Los Angeles Times focused on funds in the U.S. and worldwide, and only for the first half of the year.

Looking at the bigger picture, the Los Angeles Times found there were $724 billion in gross purchases of stock funds in the first half of the year. That's 29% more than what was spent on bond funds.

When you subtract the redemptions, however, you get a net inflow of $9 billion into stock funds. (Both newspapers used data from the Investment Company Institute, a trade group for the fund industry).

So what's the bottom line? People are indeed rushing into bonds. And they're still spending a lot of money on stocks ($724 billion is nothing to sneeze at), but they're much more cautious than before.

One investor with a new appreciation for short-term bonds puts it this way: "We have a very volatile market, so we should be in bonds in case it goes down again," he told The New York Times. "If the market is moving up, I realized we should be taking this money and putting it into something more safe rather than leaving it at risk."

More from MSN Top Stocks:
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
100 character limit
Are you sure you want to delete this comment?


Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.


StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

123 rated 1
262 rated 2
480 rated 3
651 rated 4
649 rated 5
629 rated 6
616 rated 7
496 rated 8
346 rated 9
111 rated 10

Top Picks

TAT&T Inc9



Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.