During the extreme market volatility in April, the “smart money” sold stocks, while the “dumb money” bought on the dip.

It remains to be seen who will wind up the winner in this flip of the typical hedge fund and retail investor script, but one thing is for certain, The Wall Street Journal reports. Retail investors have remained calm and are riding the turbulence out.

So far this year, hedge funds have sold more than $1 trillion of shares of equities than they have purchased, while individual investors — who hold 38% of the stock market — have continued to plow $50 billion each month in net stock purchases, according to JPMorgan.

The bifurcated reaction to the 6% decline in the S&P 500 between April 3 and April 22, 2025 is notable, as it is an about-face from investor reaction in the dotcom crash of 2000.

“There are these huge pools of capital managed by retail investors that are acting in pretty sensible ways,” said Victo Haghani of Elm Wealth, which manages the ELM Market Navigator ETF. “It’s not shakable, and it is pretty static.”

Perhaps the biggest reason why retail investors did not stampede for the exits and move into cash, bonds, gold or alternative assets is because much of the money in 401(k)s is invested in passively managed, broad index funds.

Investors with automatic payments, i.e. set-it-and-forget-it settings, to their 401(k)s are reaping the rewards of ignoring the market chaos and dollar-cost-averaging.

This is the approach that Jeremy Siegel, a professor at the Wharton School at the University of Pennsylvania, and John Bogle, the late founder of Vanguard, have long advocated for retirement savers. Their thinking? The market always, in spite of volatility or big declines, goes up.

Even amid the three weeks of market turmoil following President Donald Trump’s April 2 “Liberation Day,” Vanguard estimates that 97% of the investors in its 401(k) retirement plans made no changes to their accounts. In fact, 20% increased their savings rate.

By comparison, Goldman Sachs hedge fund clients unloaded more stocks on April 3 and April 4 that any other two-day period in the past 15 years.

“There is a distinct difference in behavior,” says Michael O’Rourke, chief market strategist at JonesTrading.

As to why hedge funds were so quick to pull the trigger on their equity holdings, many buy assets on leverage, or borrowed money. When the stocks fell, these hedge funds needed to sell stocks in order to cover the declines in the collateral they had put up to make those purchases.

Also, many hedge funds are multimanager funds that promise steadier returns. That forces their hand to sell in order to avoid steeper losses.

Finally, hedge funds are in the business of offering their investors better returns than mutual funds or other professionally managed funds, so their managers feel compelled to sell or make investments to stand out.

As the head of one hedge fund said, “We’re not in the business of riding out markets.”

Investor Gut Check

For those individual investors who stayed with the market, they have now seen the S&P 500, the Dow Jones Industrial Average and the Nasdaq return to their pre-April 2 levels, in many cases recouping their losses.

Any retail or retirement investor who may have reservations about the market volatility, the fallout from the tariffs, and the possibility of a recession, should ask themselves four questions, according to The Wall Street Journal’s “Intelligent Investor” columnist Jason Zweig:

1. What do you own and why do you own it?
2. Why do you own stocks?
3. What had changed?
4. If you didn’t already own this asset, would you buy it at this price?

Liberation Day and high price-to-equity valuations aside, little has changed with respect to the prospects for the stock market or the U.S. economy in the past month.

In fact, second-quarter earnings have been coming in strong, even though companies are warning about lack of clarity around profits.

“Beware of what behavioral economists call anchoring,” Zweig warns. “That’s the tendency to measure your gains and losses against a vivid, recent reference point rather than against what matters: the price you originally paid.”