Accounting blow-ups at
WorldCom WCOME and other companies have profoundly changed retail investors' attitudes about companies and markets. Still, many say they have little choice but to keep their money in stocks for the long term.
In a decided shift, Americans no longer regard their investment performance as fodder for light-hearted one-upmanship. Nowadays, picking mutual funds and minding retirement plans are grim and difficult tasks that investors know they can't avoid, tempting as it may be in the current climate of mistrust. And though investors have hunted for alternatives, many still see the stock market as the most sensible choice in a range of bad options.
"It's always a money-losing proposition to put money into cash, after inflation and taxes," said Geoffrey Finch, 51, an aerospace consultant based in Glendale, Calif. "And if you put a lot of money into bonds, it's likely interest rates [at this point] will go nowhere but up. That will drive the present value of your debt holdings down."
Gold stocks, which have profited from recent concerns about international political instability, don't make much sense either over the long term.
"We're still back to looking at where can I put money that will grow over 10, 15, 20 years' time? The answer is still equities," Finch said.
As of last month, investors were still pouring money into mutual funds. Equity funds saw inflows of $6.5 billion through May, according to AMG Data. But for the past three weeks, in a reflection of rattled nerves, fund flows for domestic equity funds have been negative.
There's evidence of growing disillusionment with the do-it-yourself ethos that took hold amid a surging stock market.
Finch said he's clearing out his holdings in individual stocks, which he favored in the late '90s. "I think I got caught up in some of the excitement about high-tech stocks. But by and large, they haven't done as well. The [indexing fund] averages have done better for me."
Hank Humphrey, a 63-year-old retired headhunter, said that in 2001 he and his wife sold their mutual funds and handed off investment responsibilities to a couple of professional investment advisers, meanwhile dropping their equity allocation from 50% to 30%.
"People aren't talking about the latest hot spot," said Humphrey, who lives in Short Hills, N.J. "People are talking about Treasuries and things like that. It's, 'Where can I hide?'"
Previously, the Humphreys had extensive holdings invested in Fidelity mutual funds. "As far as I'm concerned, the Fidelity mutual fund people don't get it," said Humphrey. "To shrug your shoulders and say, 'You told us to be in growth stocks' -- well, I didn't tell them to lose 60% of my money."
He points to the surge in homebuying in the New York City suburbs as evidence of the lack of faith in the stock market. Where they might have invested some of it in the market a few years ago, many feel more secure putting money into hard assets, he said.
Still, real estate isn't liquid enough to appeal to most investors as an alternative to the stock market. And though the U.S. economy is still mired in the dumps, and corporate management looks increasingly untrustworthy, most investors have little choice but to put money in the stock market, however much they may resent it.
Now, Humphrey says he's bracing for a long period of single-digit returns. "I don't think we're going to make anything more than 6% or 7% for the next five to eight years," he said.
Resigned to the need to invest in the stock market, small investors complain that choosing quality companies feels more complicated than ever. "You've got the drug stocks with
ImClone, telecom [with WorldCom], energy with
Enron; I don't think there's an industry that hasn't been affected by [accounting scandals]," said Patrick Drollinger, 38, a retired currency trader who now daytrades out of Raleigh, N.C.
Though he said he "still believes in the long term that stocks will outperform bonds and money markets, it just hurts to look at it." In his long-term portfolio, he said, "I won't go into anything but the blue, blue chips" like
Procter & Gamble,
Merck and
Wal-Mart.
In an investing climate that rewards skeptics, few sound more jaded than Craig Kincaid, a 56-year-old lumber broker in Fair Oaks, Calif. He's put about a third of his money in long-term conservative mutual funds, while he uses the remaining two-thirds for short-term trades based on his analysis of technical trends.
"The only way I will invest in the stock market is through a really well-managed mutual fund," he said. "I don't believe in investing in any stock for the long term."
Kincaid said he turned to technical analysis in the late '90s, when his concerns about banking conflicts of interest led him to start questioning management's credibility. Around the same time, he said, corporate balance sheets were growing ever more complex, laden with increasing numbers of footnotes.
"Plenty of times companies would say something in a press release, and a couple of weeks later there would be an adjustment. It became obvious to me that the numbers they were talking about couldn't be believed," Kincaid said.
"I'm pretty cynical about just about everything, so when I hear these [accounting fraud allegations], I think, 'Yow,'" said Kincaid. "But then again, why should I be surprised?"
But even though investors may resist the urge to quit, they're desire to see high-level crooks punished is undiminished.
"I think there has been a tendency to say, 'Well, let the market take care of it.' But that's not good enough," said Anne Jennings, 60, a retired government attorney in Berkeley, Calif. "Some guy in Oakland who holds up a bank will do 20 years. These people who fleece millions and millions of dollars from [investors] have to be held accountable, too."
ACCESS REALMONEY
RSS
