Investors have been running from stocks and even bonds as fast as their feet can take them, putting their cash instead in accounts that earn practically nothing but provide shelter from turbulent times.
Over the first 11 months of 2011, plain-vanilla savings and checking accounts attracted eight times the money as stock and bond mutual and exchange-traded funds, according to data from market research firm TrimTabs.
The pace accelerated to nearly 13 times from September to November, the most recent month for which data is available.
After contending with factors as ominous as the European debt crisis and as frustrating as Washington gridlock, investors have decided that the world looks best from the sidelines, despite historic efforts from the Federal Reserve to entice risk-taking.
"The real money these days is going straight under the mattress," said TrimTabs CEO Charles Biderman. "The Fed is doing almost everything in its power to entice investors to speculate in overpriced asset markets. Yet investors - particularly on the retail side - are mostly refusing to take the bait."
From January to November, $889 billion poured into savings and checking, while stock and bond funds drew just $109 billion. More money went into bank accounts even at times when the market rallied.
Most recently, investors took $9.35 billion out of equity funds - including more than $7 billion of U.S.-based funds - for the week ended Jan. 4. Stock-based funds haven't had a winning month since April of 2011, and cash in mutual funds is just over $2.7 trillion, the highest level since June 22, according to the Investment Company Institute, which tracks fund flows for the government.
Biderman attributes the reluctance of retail investors to commit money to three factors: 1) an increase in baby-boomer retirees who are becoming more risk-averse in their later years; 2) an economy getting better but still struggling, and 3) worries that the Fed is running out of ammunition to stimulate the economy.
"Investors are very skittish. The last decade has really eroded American optimism," said David Kelly, chief market strategist at JPMorgan Funds. "The problem is they look at the day-to-day volatility and they just can't take it."
Kelly believes that "economic momentum" - in better unemployment numbers, housing improvement and manufacturing gains - ought to be pushing investors away from zero-earning instruments and toward risk.
But that hasn't been the way it's worked so far, with gains continuing to come on lighter trading days and losses on higher volume.
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