Small investors’ faith in the stock market is being tested again. After the market rout of 2008 that drastically shrank their retirement nest eggs, small investors withdrew hundreds of billions of dollars from American stock funds, and they kept bolting as the market rebounded sharply for much of last year.
But earlier this year, having missed out on last year’s gains, some investors began to tiptoe back in. The timing for those people was off, and now they are being buffeted by the steep drops on Wall Street or bailing altogether. Still others who have been holding on in recent years have had enough.
Lin Hersh, a 61-year-old small-business owner in Bearsville, New York, about two hours north of New York City, called up her stock broker two weeks ago and gave the order to sell everything. She dumped nearly all of her individual equities and her stock mutual funds, moving almost completely into cash. Hersh is haunted by the market plunge of 2008, when her $432,000 in savings dwindled to $150,000.
“What I’ve got left after the last downturn is about a third of what I started out with and I’m not in the mood to play anymore,” she said.
Pointing to the weak American economy and concerns about Europe, Hersh said she would most likely steer clear of stocks through the end of this year. “I don’t think there’s a reason to buy on the dip because the dip isn’t done,” she added.
Small investors provide the bedrock for the United States stock market through their mutual funds, 401(k) plans and other company-sponsored retirement programmes. Many have called their stock brokers and financial advisers in recent days, seeking advice or reassurance that their retirements and savings would survive the dives.
The vast majority of small investors have a long-term strategy and are sitting tight. They are
not dumping their stocks or mutual funds and, in many cases, continue to pump money into their retirement accounts through employer-sponsored investment plans.
But even before the latest market turmoil, some investors began to look for the exit doors. More than $10 billion was pulled from domestic stock funds in the week that ended August 3, according to the Investment Company Institute. Those levels are double what they were in early July.
And Charles Biderman, the chief executive of TrimTabs Investment Research, estimated that investors probably pulled out another $9 billion this week while the market gyrated wildly.