Leanne Chase took her money out of stocks in early June 2008 before the collapse of Lehman Brothers sparked a near-panic. She said she and her husband had the same feeling they had during the dot-com bubble: The market had become just "weird."
Though the couple had been in and out of the market before, Chase, a 42-year-old part-time consultant and self-described conservative investor, said she has no intention of getting back in again.
"It makes me nuts when I get out early and there's more money to be made, or I get out late when I could have made more if I'd gotten out early," she said. "The stock market's not an investment, it's gambling."
The faith - and money - individual investors once held in the stock market has severely eroded.
Two painful major stock market crashes over the last decade combined with the advent of arcane, complicated trading practices has created widespread suspicion of Wall Street, which many people now regard as no better than a roulette table.
The last crash wiped out all of the gains made during the 2000s after the dot-com wipeout. The worry now is that a Lost Decade will create a Lost Generation of investors who avoid the market in a way not seen since the Great Depression.
If that happens, smaller investors could end up safe - and sorry. Experts fear people will be unprepared for retirement as a result of their exit from equities. By shunning stocks they may also be helping to create precisely the kind of stock market that ordinary investors rightly detest: one driven by day traders with low volume and prone to sudden reversals in direction.
What's clear is that whatever love affair many Americans may have had with stocks is over, at least for the moment.
By the end of 2008, $234 billion fled equity mutual funds as the stock market spiraled, according to data from the Investment Company Institute (ICI). The last quarter of 2008 was characterized by late-day market drops as a run of client redemptions forced mutual funds to sell their holdings in order to raise cash.
Last year, investors continued to leave even as the market stabilized. At the time, the worst seemed over, with just $9 billion coming out of equities overall and money starting to flow back into international stock funds again.
But losses intensified again in 2010. ICI estimates $19 billion has left mutual funds for the year so far as of the end of August. In September, equity funds recorded their fifth consecutive month of outflows. That sort of thing tends to happen only after a major event: there was a seven-month run of outflows in 2008, smack in the middle of the financial crisis, and an eight-month streak starting October 1987 after Black Monday. This time around, the flash crash may be to blame.
For the most part, investors are eschewing stocks for the perceived safety of bonds and other fixed income assets, trading the possibility of high returns for stability. Bond funds took in an unprecedented $376 billion in 2009 and another estimated $216 billion in 2010 as of the end of August.
Text and Images: Reuters