Investors pulled $44.5 billion out of stock mutual funds and $10 billion out of bond mutual funds in August, and that trend is expected to continue. According to Jeff Benjamin’s InvestmentNews article entitled “Fund investors throw in towel,” this marks the biggest net outflow from mutual funds since October 2008. The 2008 credit crisis is still fresh in investors’ minds and they do not want another stomach churning debacle involving their money. The proceeds are being put in FDIC-insured money market accounts paying an average of 0.57% per annum, according to the article.
Some money managers are at odds with their clients in telling them that they should not be in cash. “I don’t think investors see a safe harbor anywhere right now, but going to cash results in a negative return after inflation,” one advisor said.
Atlanta attorney J. Boyd Page said: “Cash may provide a negative return after inflation, but a plummeting stock market can provide a much bigger negative return. My view is that most people have a low risk tolerance and cannot afford the risk of being invested in the stock market, especially at this time. Investors and their advisors should carefully examine their risk tolerance by asking themselves, among other things, how much they are willing to lose. If the answer is less than 20%, or if they may need to spend the money in 3 to 5 years, they probably should not be invested in stocks, bonds or any other risk asset. It must be noted that advisors often have a conflict of interest in advising their clients to be in cash. Advisors can’t generate commissions if there is no buying or selling and it is problematic to charge a management fee on cash.”
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. For further information, please contact us.