So here we have an investor that sold everything after the crash of 2008 to cower in cash and is now, after an historic stock market run-up (a doubling!) jumping back in to stocks. I don't claim to be able to time the market or foretell where stocks are headed, but I know financially self-destructive behavior when I see it.As a historic bull market reaches its second birthday, everyday investors are piling back into stocks, finally ready for more risk and hoping the rally has further to go.
The Standard & Poor's 500 index has almost doubled since March 9, 2009, when it hit a 12-year low after the financial crisis. And the Dow Jones industrials are back above 12,000, about 2,000 points shy of their all-time high.
Little-guy investors appear to be on board. Since the beginning of the year, investors have put $24.2 billion into U.S. stock mutual funds, according to the Investment Company Institute. They withdrew $96.7 billion in 2010.
"It didn't feel right to be back in until now," says Richard Dukas, who heads a public relations firm in New York City. "I still don't want to put all my money in the market, but I believe we've come through the worst of it."
After the 2008 financial meltdown, Dukas and his wife converted their 401(k) retirement accounts into cash. They had been burned during the bubble in technology stocks a decade ago, and Dukas says he has been "extremely skittish" ever since.
Now Dukas, 48, says 85 percent of his portfolio is back in mutual funds, although he maintains a small cushion of cash.
The money quote: "It didn't feel right to be back in until now."
There are a few points about this. First, any time I'm tempted to market time based on what "everybody knows", I'll just remember how this poor guy sounds. (Like cannon fodder, to be frank.)
Second, it seems that many people are very, very poorly equipped to handle investing. To invest well, you have to understand things not only about the markets but about yourself and your mind that I think a lot of people just do not grasp. This means that "investing well" is not going to necessarily be the same formula for every person of every mindset in every financial situation.
Third, this is another cruelty that artificially low interest rates inflict. Achieving safe but reasonable yields becomes difficult. People that just do not know what they are doing find themselves coaxed away from the safety of CDs, Treasuries, and savings accounts into the waiting arms of the stock market. (Or Sri Lankan bonds.)