Individual investors are sticking to cash and bonds after the 2000s provided the worst decade of stock returns in history.
Experts estimate that Americans have parked up to $9 trillion in bank accounts, certificates of deposit, Treasury bills and money-market funds, CNBC reports.
Stocks fell an average of 0.5 percent a year in the last decade, hit by the dot.com bust, accounting scandals, the real-estate bubble, the credit crisis and the Great Recession.
“People are tired of bubbles,” Michael Bechara, managing director of Granite Consulting Group, told CNBC.
“Now, when they see the market take off, they don’t buy in. Maybe this is a good time to adopt preservation of capital as an investment strategy. "
The Standard & Poor’s 500 Index has rebounded 63 percent from its March 2009 low, but retail investors aren’t buying in.
“The small investors have largely sat out the rally, and with good reason as the market has made a firm departure from fundamentals,” adds Bechara.
Investment flow data show that individual investors are indeed shying away from stocks.
Nearly 60 percent of the $1.2 trillion net inflow to long-term mutual funds last year went to bond funds, according to the Investment Company Institute.
That trend has resumed since stocks reached their peak in April. Equity funds saw outflows of $5.41 billion in June and $24.76 billion in May. Meanwhile, bond funds experienced inflows of $39.53 billion in June and $26.42 billion in May.
In the most recent week alone, stock funds suffered a $3.85 billion outflow, while bond funds enjoyed a $13.25 billion inflow
“I think most retail investors think the market is a sham,” Bechara said. “The less sophisticated arrive at this conclusion via intuition. The more sophisticated realize that a handful of major players are passing shares back and forth rapidly.”
Individual investors aren’t the only ones flocking to safe investments.
Pimco’s Bill Gross has loaded up on Treasuries to the point that they comprise 51 percent of his Total Return fund.
With rates near zero, “an investor can make money simply by buying five-year Treasuries, watching them roll down the curve to four years and then popping back up to five years again,” he told Bloomberg.
Hedge funds are diving into Treasuries too. They now account for about 20 percent of trading in the $10 trillion market, up from 3 percent last year, according to a new study from Greenwich Associates.
"Hedge funds over the past 12 months have been refocusing their attention onto more liquid products," Greenwich Associates consultant Tim Sangston told MarketWatch.
"This change in approach reflects both shifts in investment strategies and the impact of liquidity demands on the institutions that supply a growing share of hedge-fund capital."
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