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Investors Push Money Back Into Mutual Funds

Sunday, February 13, 2011 - 10:21 AM
From USA Today:
Main Street investors, who had been bailing out of mutual funds that invest in U.S. stocks since the start of the financial crisis, are plowing cash back into these funds early in 2011, a sign that confidence in the economy and stock market is rising.

Is this a sign that we'll see years of above-average stock market performance? Or is it a sign that the market is getting closer to yet another big crash?
Ken TuminKen Tumin5,471 posts since
Nov 29, 2009
Rep Points: 125,634
1. Sunday, February 13, 2011 - 11:46 AM
Time to get out of the market. When the herd rushes in it's a sure sign that the bull run is near an end. Even Goldman Sachs is hesitant to put even more money into this market.
ShorebreakShorebreak2,686 posts since
Apr 6, 2010
Rep Points: 14,567
2. Sunday, February 13, 2011 - 3:21 PM
Shorebreak has that right. Rising interest rates, which are quite possible by the end of the year, will put significant downward pressure on the market, and it will very likely drop substantially. That is the routine when interest rates rise. 

The market typically drops notably over the summer, and then comes back in late fall. Because interest rates quite possibly will be rising by late fall, what will probably happen this year is that the market will probably drop for summer, likely starting in April or May, but not come back at the end of the year this time around.

That means the next couple of months is a good time to get out.

Unfortunately, the only safe place to go, the banks, are quite disappointing with the interest rates they are offering now or are likely to be offering any time this year. So, money you move from stocks to the banks will pretty well just sit around and do nothing. Your only benefit will be that it doesn't lose money, like the stock market is likely to.

Unfortunately for me, I pretty much never have enough sense to follow my own advice. 
me1004me1004373 posts since
Jan 16, 2010
Rep Points: 2,598
3. Sunday, February 13, 2011 - 4:42 PM
Me1004, you are not alone.  Many of us fall into the "do as I say, not as I do" trap.  

With the recent rally in the market, a lot of losing positions have been turned around.   However, I still remember an old friend's advice to never let green (profit) turn to red (a loss) so I will lock in some gains soon.   The only safe alternative, as you say, seems to be in low-paying accounts, where at least one does not lose money.  RCAs are good alternatives, though, and thanks to Ken we have a chance at finding the best rates. 

pearlbrownpearlbrown1,474 posts since
Nov 2, 2010
Rep Points: 6,407
4. Sunday, February 13, 2011 - 5:13 PM
Nobody can time the market.  It may be high time to bail out the market; or it may not.

Develop a strategy that is independent of the market ups/downs; that is the prudent approach.
51hh51hh1,476 posts since
Jan 16, 2010
Rep Points: 6,427