“Main Street” is dumping stocks.
Professional investors keep investing, as the market, as of June 2014, was hitting new highs. The Dow since has passed the 17,000 mark.
Adam Shell, in an article June 12, 2014 in USA Today, writes that average investors in mutual funds are getting out of the funds heavily weighted toward stocks and moving into bonds and bond funds. That obviously hasn’t stopped the stock market from hitting records.
Shell’s article theorizes that the average investor, after going through the downturn starting in 2008, believes that the stock market can’t keep going up forever. On average, Shell writes, the stock market goes through a correction every 18 months. So far, it’s been 32 months since the last correction.
Yet, professional investors pumped $5.5 billion into U.S.-based exchange-traded stock funds.
It’s true that professional investors are accustomed to the ups and downs of the market, and have plenty of money to lose. Average investors could lose everything, and are more cautious.
But perhaps it’s more than that. Average investors are probably having to dip into their nest eggs sooner than they had planned. Perhaps they’ve lost a job, and can’t find another that pays as well. Perhaps they were forced to retire early – before they could build a sufficient nest egg.
If you consider yourself an average investor, it’s certainly OK to be cautious. It’s certainly OK to take your profits if you are not comfortable with the risk. Still, it may be unwise to let fear govern your decisions.
Sure, your investment adviser may be a “professional.” But if you trust your adviser, let him or her guide you through this time. Interest rates and inflation are still low. The hyper inflation that the naysayers predicted a few years ago has not come to pass.
Make no mistake. Interest rates and inflation can’t stay this low forever. The Federal Reserve has stopped pumping as much money into the system as it has been, which may signal rising interest rates. Rising interest rates are not all bad. If you are not borrowing money, but have cash on the sidelines, rising interest rates will help you.
In short, if your trusted adviser is telling you to stay put, it’s probably OK. If he’s recommending that you move your money, he may have an inkling that something is coming, and may be exercising caution with your precious dollars.
If you are among those who is going through an economic pitfall, visit www.bign.com/pbilodeau. You certainly won’t get investment advice, but you may find a great way to put more money in your pocket.
Obviously, the more money you have, the more risk you can tolerate. But try not to take what you believe is desperate action. Desperate action can just make a bad situation worse. Make sure you are making decisions rationally, rather than emotionally. Let your trusted adviser guide you.
No one wishes for another stock market crash. Still, they happen. But most advisers say that timing the market is unwise. It might be best to find investments you are comfortable with, and roll with the ups and downs. If it goes down, put more money in. If it goes up, let it keep growing. Most of all, follow your adviser’s guidance.
Investors operate on fear and greed. Make sure your fear is justified and rational. Try not to get too giddy with greed.