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Americans have missed out on almost $200 billion of stock gains as they drained money from the market in the past four years, haunted by the financial crisis.
Assets in equity mutual, exchange-traded and closed-end funds increased about 85 per cent to $5.6 trillion since the bull market began in March 2009, trailing the Standard & Poor's 500 Index's 94 per cent advance, according to data compiled by Bloomberg and Morningstar Inc. The proportion of retirement funds in stocks fell about 0.5 percentage point, compared with an average rise of 8.2 percentage points in rallies since 1990.
The retreat shows that even the biggest gain since 1998 failed to heal investor confidence after the financial collapse that wiped out $11 trillion in US equity value was followed by record price swings in equities, a market breakdown that briefly erased $862 billion in share value and the slowest recovery from a recession since World War II. Individuals are withdrawing money as political leaders struggle to avert budget cuts that threaten to throw the economy into a new slump.
"Our biggest liability in the stock market has been the total destruction to confidence," James Paulsen, the chief investment strategist at Minneapolis-based Wells Capital Management, which oversees about $325 billion, said in a telephone interview. "There's just so much evidence of this recovery broadening."
The S&P 500 climbed 1.2 per cent to 1,430.15 last week, extending the 2012 gain to 14 per cent, led by financial stocks and consumer companies. The benchmark index from American equity has risen from a low of 676.53 on March 9, 2009, though it is still 8.8 per cent below its record high on October 9, 2007.
Now, much of the damage to investors is self-inflicted, as US growth improves and companies whose earnings are most tied to economic expansion reap the biggest rewards. Of the 500 companies in the benchmark index, 481 are higher now than they were in March 2009 or when they entered the gauge.
Expedia Inc, the Bellevue, Washington-based online travel agency, rallied 577 per cent, leading consumer discretionary companies to the biggest advance from 2009 through the third quarter. Capital One Financial Corp rose 39 per cent this year as the Mclean, Virginia-based lender posted profit that beat projections by 19 per cent last quarter.
PulteGroup, the largest US homebuilder by revenue, more than doubled this year after the Bloomfield Hills, Michigan-based company had its biggest annual earnings increase in 2012 and the housing market rebounded.
Individuals are selling into the rally, cutting the proportion of assets in stocks to 72 per cent from 72.5 per cent in 2009, according to 401(k) and IRA mutual fund data from the Washington-based Investment Company Institute compiled by Bloomberg. The data is for all equities, bonds and hybrid funds, and excludes money markets. Investors are lowering the proportion of stocks they own in retirement funds during a bull market for the first time in 20 years.
The percentage of households owning stock mutual funds has also fallen, dropping every year since 2008 to 46.4 per cent in 2011, the second-lowest since 1997, according to the latest ICI annual mutual fund survey.
The technology bubble in the 1990s saw equity mutual funds expand twice as much as the S&P 500. Stocks' representation in 401(k) and individual retirement account funds rose to about 90 per cent in 2000 from 77 per cent in 1992.