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Retail Investors Miss Rally (Again)

While stocks have been on a tear over the past few weeks, many retail investors find themselves in a familiar position: on the sidelines.

The Standard & Poor’s 500-stock index was up again this week after hitting a three-month high of 1390 on Friday and notching its fourth straight week of gains. Over that period, the index rose nearly 3%. But many retail investors missed out on the rally, yanking $9 billion from equity mutual funds in July, according to the most recent available data from Lipper, a research firm. Even with stocks reaching new milestones, “mutual-fund investors couldn’t get themselves to pile more money into their accounts,” says Jeff Tjornehoj, a senior analyst at Lipper.  Separate data suggests retail investors are bailing from equities just as pros are rushing in. Exchange-traded funds that track stocks took in $13 billion in July, and $41 billion this year. Analysts use such inflows as a gauge of institutional activity, because ETFs are still viewed largely as a tool used by financial advisers, traders and other professional money managers.

Sergej Khakimullin / Shutterstock.com

What’s not to love about stocks? Plenty, say crisis-scarred retail investors. Months of disappointing jobs numbers and other economic red flags have many worried about slower economic growth at home — and more volatility in the stock market. Last week’s mini flash crash, caused by a trading glitch at Knight Capital that impacted more than 140 stocks, only raised those concerns. Other advisers, like Frank Fantozzi, chief executive officer of Planned Financial Services, say they’re nervous about the so-called fiscal cliff that’s expected to be reached in January, when the combination of mandatory federal spending cuts and the expiration of several key tax breaks could create an even bigger drag on the economy. “We’re expecting more volatility,” says Fantozzi. Of course, it’s not the first time investors have fled the market during a rally: According to SmartMoney columnist Brett Arends, Main Street America largely missed the rally in stocks since the market bottomed out in early 2009. In total, over the past five years, the investors in ordinary domestic mutual funds have withdrawn $490 billion from the U.S. stock market. And there have been only a few brief periods during which they were buying, Arends found: the spring of 2008, just before the market collapsed; the spring of 2009, after the stock market had already rallied; and the start of 2011, shortly before the market slumped again. (For more, check out “Main Street’s $100 Billion Stock-Market Blunder.”)

Some market bulls say it’s not too late for small-fry investors to get in on the stock action. With the 10-year Treasury yielding just 1.6%, Richard Weeks, managing director and partner at HighTower Advisors in Vienna, Va., says stocks have more long-term potential than bonds. When today’s low interest rates eventually rise, bond prices should drop, which should push more investors back into the stock market. Even in today’s “unusual market,” where investors often react dramatically to news events, Weeks says he plans to snap up more stocks. He’s just waiting for the next market dip. “I might add when things get ugly,” he says.

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    • Depends on what your goals are as an investor. If you are ynugoer and can take more risk, you can invest in more risky assets. If your investment horizon is shorter, you may want to invest in more less risky assets such as bonds. Its important to find the correct mix between them. A rule of thumb is to take your age and subtract it from 100. For example, if you are 30, you should invest 70 percent in stocks and 30 percent in bonds.Mutual Funds are a good investment for beginners, every mutual fund trades like a stock at the end of the day. Stay away from Mutual Funds with load fees, there are many that are offered commission free, depending on your broker. Each Mutual Fund also gives you the mix of assets it has (bonds vs. stocks). The more bonds you have, the less risk.For a beginning investor, a S P 500 Index fund would not be a bad idea. Its a fund of assets mixed together to mimic the returns on the market. You will not see abnormal returns over the market because the risk you take with this investment is relative to the index.Also, if you want to control your own investments, you should look into an online broker such as Sharebuilder, Etrade, Scottrade, and Ameritrade. Shop around for different features that work for beginners and find the cheapest commission. Good luck!

    • Give me a break! Look at the 6 month return…stocks are heading toward a “tearful ending” is more like it. Anyone who buys over the average historical PE is simply a fool, or listens to the idiot who wrote this article.

    • This article had to be sponsered by Stock Jocks.. Not Bond Jocks.. Pimco is a Bond Jock. I noticed Bill Gross recent commentary on stocks.. THE STOCK MARKET IS RIGGED.. Bonds are more transperant.. Just buy good quality bonds and wait till they mature.. You receive a nice income stream and get your investment back when they mature.. Be careful of Bonds fund right now..I would never buy a bond fund right now. The fiscal clff in bond funds will happen when rates rise.

    • S&P or any stock has only a few peaks and some investors are probably buying below peaks and cashing out near peaks. For all you know, these retail investors may not have lost but rather gained…

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