February 1, 2013

Despite stocks' success, many small investors stay away

Individuals who took their money out of stocks and mutual funds after the collapse continue to be cautious, leaving institutional investors to fuel the surge.

By Jessica Hall jhall@pressherald.com
Staff Writer

The Dow Jones industrial average closed over 14,000 on Friday, the highest point since 2007, but its rise isn't being driven by individual investors, who still lack confidence in the stock market and remain nervous about the nation's economy.

Frederick Reimer
click image to enlarge

Trader Frederick Reimer works the floor of the New York Stock Exchange on Friday where a board, above, shows the closing number for the Dow Jones industrial average, which topped 14,000 for the first time since 2007. Large investors are behind the index's recent rise.

The Associated Press

click image to enlarge

The Dow Jones industrial average topped 14,000 for the first time since 2007 on Friday.

The Associated Press

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The surging stock market is being driven largely by institutional investors.

"You would think that investors today would be very, very happy and that they'd be spending money. I don't see that," said Joel Gold, chairman of the accounting and finance department at the University of Southern Maine and a certified financial planner with the Gold Co. "They're still worried. They're worried about their jobs. They're worried about retirement."

He said, "Even though the market has gone up terrifically, investor feelings are still cautious."

The Dow Jones industrial average, a benchmark for the stock market as a whole, hit a high of 14,019.78 on Friday, crossing the 14,000 threshold for the first time since before the Great Recession

It closed at 14,009.79, up 1.08 percent for the day. Before Friday, the Dow had closed above 14,000 just nine times. The all-time closing high is 14,164.53, hit in October 2007.

Susan Winthrop of South Portland said the Dow's surpassing 14,000 means little to her.

"I don't follow the market," she said. "It's too upsetting to see the swings."

Sam Miles, an engineer from Freeport, said he takes a hands-off approach. He puts money into his 401(k) retirement plan, but finds it too stressful to watch the daily gains and losses.

"I put money in my 401(k) plan and leave it there and don't think about it," he said.

He said he's disciplined about putting money aside from every paycheck, but fears he may never be able to retire.

"I'm not counting on Social Security," Miles said. "I'm not counting on retiring."

He isn't alone. The Employee Benefit Research Institute found in a study last year that Americans' confidence in their ability to retire comfortably is historically low. Just 14 percent are "very confident" that they will have enough money to live comfortably in retirement, the institute found.

Many workers reported having little to no savings and investments. Sixty percent of workers reported that the total value of their household's savings and investments, excluding the value of their primary home and any defined benefit plans, is less than $25,000, the Employee Benefit Research Institute found.

Tom McNeil, a contractor from South Portland, said he expects that he will have to keep working well into his retirement years.

"I'm going to be working until the day I die," he said, so "14,000 doesn't matter to me."

When the market hit bottom in 2008, many individual investors left the market and retreated to the safety of cash or bond funds. Investors are now starting to move cautiously back into stocks, financial planners said.

The Senior Center at Lower Village, a retirement community in Kennebunk, had an investing club for its residents, but the club disbanded after the market tanked with the economy's collapse in 2008.

Recently, an informal group at the Senior Center has started meeting over coffee with Caleb Allen, a financial adviser with Edward Jones, to discuss issues ranging from stock market history to more current events like the "fiscal cliff."

The seniors tend to be very disciplined, long-term investors, Allen said.

"Their philosophy doesn't change with the market fluctuations," Allen said "Ninety percent of their focus is in blue chip stocks. They've held on to them for 15 to 20 years. They look for quality."

In the first three weeks of January, $14.9 billion went into equity mutual funds -- the biggest three-week increase since January 2001, according to Lipper, a division of Thomson Reuters. But that was just a fraction of the net reduction of $416 billion in mutual fund investments from 2008 to the start of 2013.

(Continued on page 2)

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