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How Long Can Investors Ignore Uptrending Equities?


Despite the broad-market upswing, money continues to sit on the sidelines.

With the market up nearly 15% year-to-date, the bearish sentiment surrounding equities is surprising. Schaeffer's own Ryan Detrick has pointed out on numerous occasions that outflows from equity mutual funds have been going on for months. This continues despite the fact that the Dow Jones Industrial Average (^DJI) is up 10 of the past 11 months.

Many of you might be wondering: What are the wealthiest Americans doing with their money? If you have been following the recent financial press postings, it is clear that investors are looking elsewhere for returns on their cash, and pessimism toward the market is high. This bit of "wisdom" has become so prevalent and mainstream, that even USA Today (a non-financial media source) published a recent article with some statistics about current cash allocations among the wealthy:
  • "One Percenters put 56% of their free cash into savings and money market accounts in the first quarter, up from 24% in 2007."
  • "A record $9.43 trillion [...] is now sitting in money market mutual funds, bank savings accounts and CDs...."
  • "[I]nvestors have been lightening up on stocks since the financial crisis. In the four years ending 2011, individual investors yanked more than $395 billion out of stock mutual funds...."
  • "[M]ore than $775 billion has been funneled into the perceived safety of mutual funds that invest in bonds."
To most informed investors, this is not news. However, there are still two major thoughts that come to mind given the previous numbers: 1) We have (arguably) never had this much money sitting on the sidelines, and 2) People would rather put their money into extremely low-yielding financial vehicles (such as money market accounts with a 0.05% return) than a market that has more than doubled since March 2009, and has double-digit returns year-to-date! Should the wealthy decide to re-allocate their money once again into the equity market, the bullish implications could be dramatic.
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