Have the Equity Markets Become Too Risky for Most Retail Investors?


Investors withdrew net $23.5 billion from U.S. equity mutual funds as of Aug. 10, the most since October 2008, following the Lehman Brothers bankruptcy, according to a recent InvestmentNews article entitled “Equity investors exiting — and may not be back for years.”.

Faced with unnerving volatility in the present and recent past disasters, investors have flipped the switch to “risk off,” and are leaving equity investing for the foreseeable future. Here is the article’s sampling of the past disasters fleeing investors are seeing from their present turbulent vantage point:

  • the bursting of the Internet bubble in 2000
  • a 57 percent collapse in the S&P 500 Index from October 2007 to March 2009
  • the “flash crash” in May 2010 that briefly erased $862 billion in value from U.S. shares
  • falling home prices
  • unemployment above 9 percent
  • a lack of trust in government to bring down spending

“What we have seen this time is a much slower return to risk-taking,” Francis Kinniry, principal at Vanguard Group, the largest U.S. mutual-fund manager, was quoted as saying, adding: “There was significantly more wealth destruction this time around.”

The reason for this greater wealth destruction: Falling home prices, according to Mr. Kinniry. In bear markets prior to 2008, residential property values were rising.
In addition, Baby Boomers are retiring and, properly, have a lower risk tolerance.

Atlanta attorney J. Boyd Page observed: “Given the level of volatility and complex events unfolding in today’s markets, investors should make sure their asset allocation is in line with their time horizon and risk tolerance. Every investment has risks, and it is particularly important to avoid taking excessive and uncompensated risks. Investors should remember that advisors have an obligation to inform investors of the risks associated with investments the advisor recommends.”

Page Perry is an Atlanta-based law firm with over 125 years collective experience representing investors in securities-related litigation and arbitration. While past results are not indicative of future success, Page Perry’s attorneys have recovered over $1,000,000 for clients on more than 45 occasions.