In case you haven’t noticed, retail investors are terrified of the stock market—and they’re plowing into bonds. Maybe that’s because, according to a new survey from TrimTabs Investment Research, at least half of investors in U.S. stock funds lost more than 25 percent over the past decade, which many refer to as the “lost decade.”
This research points to a recurring problem: Individual investors are terrible at trying to time the markets. “Thanks to poor market timing, mom and pop incurred particularly awful returns in the past decade,” says Vincent Deluard, executive vice president at TrimTabs, in a press release. “We also find that misguided entries and exits on the part of retail investors are the rule, not the exception.”
TrimTabs used flow-weighted purchasing prices to show that stock fund investors bought into the S&P 500 at an average level of 1,434 in the past decade. The index peaked at 1,565 in October 2007 and bottomed out at 676 in March 2009. This means that instead of buying low and selling high, investors tended to buy near the top and sell near the bottom—essentially locking in huge losses over the decade. “Given the beating they’ve suffered, we doubt they will show much enthusiasm for U.S. equities until the S&P 500 reaches 1,400 and more of them are breaking even,” Deluard notes.
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