May 21, 2019
During December 2018, when the market was declining -scratch that - panicking, and stock prices were getting less expensive, investors sold $28.9 Billion of US equity mutual funds and ETFs and they sold $29 Billion of Non-US mutual funds and ETFs. $57 Billion formerly invested in equities went somewhere. Bond funds experienced $49 Billion of outflows as well. Was it mattress time? Since there are always two sides to a trade, some investors made out well to the detriment of others.
In December, the S&P 500 index declined 10%. The net selling stopped on Christmas Eve and at that point the index was down 15.7%.
January through March, US funds had outflows of $16.6 Billion and World funds had inflows of $4.6 Billion. Net equity outflows were $12 Billion.
But during April and so far in May, $27 Billion of equity fund outflows have occurred. US outflows were $19.8 Billion and Non-US was $7.7 Billion.
As I write this, the S&P 500 index is at 2887. That’s a recovery of 15% from December 31, 2018.
What might this mean?
One way to look at these funds flows is: A lot of capital was destroyed - possibly permanently. Selling during a panic. Investing in fixed income. Not returning to equities…yet.
How much was lost by panicked investors? I’ll venture an estimate of around 15% of $56 Billion, so probably around $8 Billion. I hope you’re not part of these numbers.
While the market was falling, investors sold equities. While the market was recovering, investors sold equities. And now with the recent trade gyrations, investors continue selling equities.
Since the beginning of 2019, $167 Billion has gone into bond funds.
Implications For Retirement
Living on fixed income in retirement is tough – especially if you live longer than you expect. Every year, everything you buy costs more.
The rational thing to do in December would have been to buy equities as the prices are falling. Unfortunately, your emotions tell you to do otherwise.
I have seen it written by Nick Murray (50 years in the financial advisory business) that “humanity is a failed investor.” This funds flow data backs that statement up.
(Data Source: Investment Company Institute www.ici.org)
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