U.S. stocks have had a nice rally since the start of the summer, recently hitting their highest levels since December 2007. But individual investors are once again watching all the action from the sidelines.
As the S&P 500 gained nearly 10% from June through August, individual investors yanked almost $40 billion from the U.S. stock market, according to data from EPFR Global, a Boston-based firm that tracks fund flows for both mutual funds and exchange traded funds.
What's keeping them away? Experts say the steady exodus can be attributed to a change in investing behavior on the part of Baby Boomers, who represent the most sizable group among retail investors.
"The front end of the Baby Boomers are moving into retirement, and they've already suffered two major shocks in their portfolios in less than a decade: the dot-com bust and the financial crisis," said Cameron Brandt, director of research at EPFR Global. "They're supposed to be rotating into bonds anyway, but they've made the shift even sooner thinking, 'I might as well do it while I still have the money.'"
The retreat isn't exactly a new trend.
While the S&P 500 has more than doubled in value from the March 2009 lows, investors have withdrawn nearly $500 billion from U.S. stocks during that same time period. This year alone, they've pulled more than $100 billion from U.S. stock mutual funds and ETFs.
In fact, experts like Joe Saluzzi, co-head of equity trading at Themis Trading and author of Broken Markets, say that the evolving structure of the stock market makes it nearly impossible for small investors to succeed if they try to trade for short-term gains.
Traders on Wall Street have sophisticated trading programs and unparalleled access to market research and information in comparison to retail investors.
"If you try to trade, you will lose," he said bluntly. But Saluzzi also noted that current market fundamentals are not all that compelling for small investors either.
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"Retail investors do have confidence issues and feel that the stock market is rigged, but they also don't understand how the market can have such a heated rally when they consider the health of the broader economy," he said. "They know that economic growth is anemic, but the Federal Reserve's policy keeps inflating the stock market. It just doesn't jive well."
Saluzzi said investors who are willing to execute a buy-and-hold strategy can still benefit from owning stocks.