Stocks: $2.9 trillion on the sidelines

NEW YORK (CNNMoney.com) -- Investors have socked away billions of dollars since March 2009 and it's unlikely that money will come pouring into the stock market anytime soon.

After getting slammed by the housing collapse and a recession that nearly became the second Great Depression, individual investors have reason to be skittish.

"Investors had more than a year of a rising market when they could have gotten back in and didn't, so why would they now?" said Vincent Deluard, a mutual fund flow strategist at tracker Trim Tabs.

They have less cash now, and just when they started to dip back into stocks, the Dow plunged nearly 1,000 points on May 6 in its worst intraday selloff ever. During the week of the flash crash, investors pulled roughly $12.4 billion out of U.S. and international equity funds, according to Trim Tabs.

Stocks have been trading in jerky, volatile trading, with the three major gauges currently just barely higher for the year. That seesawing is probably going to be the trend for the near term as the markets work their way higher. On top of that, many investors who got out of markets in the huge 2008-09 market selloff still haven't returned and it's unclear when that might change.

Those investors "got out on fear and without a strategy," said Mickey Cargile, managing partner at WNB Private Client Services. "Now they need a strategy to get back in and they don't quite know what to do."

There's still $2.878 trillion sitting in money market mutual funds as of this week, according to the Investment Company Institute, with just under $1 trillion of that in retail money market funds. If even just the retail investors decided to jump back in, they could pack a substantial punch, said Charles Rotblut, vice president of the American Association of Individual Investors.

"We're seeing that investors want to believe in the recovery and improvement in corporate profits, but are still not yet ready to jump back in when they're still very concerned about jobs and housing," Rotblut said.

Rotblut said the members of his group have been moving into more defensive areas, including commodities, gold and health care. Two months ago, they favored technology, financials, retail and transportation, stocks that are more likely to benefit in a faster-growing environment.

"I feel for individual investors that are riding out there on their own," said Ray Harrison, president of Harrison Financial Group.

"Markets are created to extract pain from investors who aren't prepared to filter out what's vital and what's just background noise," Harrison said. "Individuals often end up responding to the background noise and making emotional decisions."

And the recession has made them more wary of stocks, having now been burned twice in this decade -- in the 2000-02 bear market following the collapse of the tech bubble and in the most recent bear market that lasted until March 2009.

On the flip side, institutional investors have an endless time horizon, a committee of experts to brainstorm with and the need to be invested most of the time. Individuals may not have access to experts and the time horizon is narrower, as is the goal -- retirement, education, a down payment on a home, said Chris Walters, executive vice president at CitizensTrust.

"Retail investors are still hurting economically whereas the institutional investor is not," Walters said.

Between October 2007 and March 2009, the stock market plunged 57%. The S&P 500 fell from an all-time high to a 12-year low.

In that same time, investors pulled $267 billion out of stocks and stock mutual funds, according to Trim Tabs, with the bulk of it, $250 billion, coming out in the last nine months of that period.

By the time Lehman Brothers collapsed in September 2008, investors were so panicked they were selling everything, with bond funds losing $62 billion in the fourth quarter of 2008.

But as the market bottomed in March 2009, it was bond funds, if anything, that benefited. Since the March 2009 lows, the S&P 500 has gained 71%. During that same time, investors poured money into bonds and bond funds every single month, adding $485 billion, according to Trim Tabs.

And stocks and stock funds? There was some buying, particularly in the first few months after the bottom. But it never came near the levels of bond funds. In the 14 months since, investors have added $34 billion to the stock side.

In January, March and April of 2010, investors added money to stocks, but Trim Tabs projects outflows in May will be around $5.1 billion, assuming the outflows of over $12 billion last week will be tempered in the coming weeks by some inflows.

"It takes about 18 months after a crisis to get to the point where you're not motivated by fear and we're getting closer to that point," said WNB Private Client Services' Cargile.