Sadly, over $300 billion has flooded OUT of domestic equity mutual funds since early 2009, while the S&P 500 has risen over 80%. Many S&P stocks also pay a dividend, currently averaging around 2%, which certainly beats the interest offered by savings accounts, bank CD’s and short-term bond funds. The S&P is rising despite these mutual fund liquidations because “smart money” continues to flow into individual stocks. While I cannot predict the future short-term trends of the economy and markets, what I can tell you is that over the past few years the herd mentality has been wrong once again.
The shaded grey area represents the cumulative dollar value of redemptions of domestic (meaning U.S.) equity (meaning stock) mutual funds. The left side axis shows the amounts in millions of dollars that matches the shaded grey area. On the right axis, the line shows the level of the Standard and Poor’s 500 index, which measures the level of the stock market (the green line). You can see where it hit a low on early 2009 (the dates are shown at the bottom of the chart) and has since steadily risen in a slightly bumpy line. As the green line rises, the grey area has swollen as frightened investors have sold their funds even as the market has continued up. 😦
Sources: Investment Company Institute, Interactive Data.
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