Clueing in to a Rigged Game

By BJ Bjornson



Admittedly, when I read the first paragraph of this New York Times article, my thought was similar to that of Atrios: The reason small investors were fleeing Wall Street could be explained fairly simply with the fact that they don�t have the money to invest. Reading further, however, the story is more in line with the NYTimes headline.



It isn�t the money that�s being withdrawn, but the reallocation of existing investments and the direction of new investments that tell that story.

Until two years ago, 70 percent of the money in 401(k) accounts it tracks was invested in stock funds; that proportion fell to 49 percent by the start of 2009 as people rebalanced their portfolios toward bond investments following the financial crisis in the fall of 2008. It is now back at 57 percent, but almost all of that can be attributed to the rising price of stocks in recent years. People are still staying with bonds.



. . .



As investors pulled billions out of stocks, they plowed $185.31 billion into bond mutual funds in the first seven months of this year, and total bond fund investments for the year are on track to approach the record set in 2009.



Charles Biderman, chief executive of TrimTabs, a funds researcher, said it was no wonder people were putting their money in bonds given the dismal performance of equities over the past decade. The Dow Jones industrial average started the decade around 11,500 but closed on Friday at 10,213. �People have lost a lot of money over the last 10 years in the stock market, while there has been a bull market in bonds,� he said. �In the financial markets, there is one truism: flow follows performance.�

And that performance goes back a lot further than the last ten years. While I can no longer find the article, it was noted when the big crash of �08 came that overall, you would have been better to be in bonds than stocks for the last thirty or more years. The stock market just doesn�t pay well for the little guys, and it may be that enough of the little guys are finally clueing in to that.