We know—we’re our own worst enemies, behaviorally speaking. Widely-reported analysis from the Investment Company Institute found that in 2000—the tech bubble’s top—investors poured a record amount of net new cash into equity mutual funds, while pulling money from bond funds.
In 2002, during the market bottom and the throes of the bubble’s burst, investors pulled from equities to pour another record amount back into bonds.
In other words, they did exactly the opposite of what was warranted, making the classic (and maddening) market mistake—buying high and selling low.
Much has changed in the decades since, and investors (and retirement plan participants) might finally be getting it, if recent numbers are any indication, forgoing high-highs to avoid the inevitable low-lows.
“The S&P 500 is having its best run in six years, but individual investors are fleeing stock funds at the fastest pace in decades,” The Wall Street Journal said Sunday. “That is potentially a good sign for the long-running bull market.”
Indeed, it matches data specific to the 401k space, with Illinois-based Alight Solutions noting that Q3 was the seventh consecutive quarter where net trades favored fixed-income funds over equity funds.
Record withdrawals
The Journal, citing Refinitiv Lipper data going back to 1992, reports that investors have pulled $135.5 billion from U.S. stock-focused mutual funds and exchange-traded funds so far this year, “the biggest withdrawals on record.”
“Analysts say the trend highlights investors’ apprehension toward a stock market buffeted by the long-running U.S.-China trade war and lingering worries about a potential recession,” the paper adds. “Stock funds have bled money over seven consecutive quarters, dating to the second quarter of 2018—when trade tensions between the U.S. and China ratcheted higher.”
While stock and bond correlations are always a concern, it’s a sign that investors aren’t chasing performance, something sure to make Morningstar and other industry watchers happy.
“People have pulled $135.5 billion out of stock mutual funds and ETFs this year, the biggest outflow in history going back to 1992 when they began tracking this data,” Reformed Broker and Wall Street scold Josh Brown tweeted Sunday. “The S&P 500’s total return for 2019 is roughly +28% so far… Incredible!”
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
