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Money Management Executive

Gun-Shy Investors May Be Good For Markets

September 14, 2004, 1:00 a.m. EDT 1 Min Read

Investors are increasingly staying away from stocks – but, oddly enough, this may turn out to help the markets in the long run, The Wall Street Journal reports.

Because of problems with earnings and fears of terrorism, skeptical investors are not trading as much in the stock market. Instead, many are buying Treasury bonds and loading up on cash. But once they decide to dive back in, they may have more money to spend on stocks and mutual funds.

"Sentiment has really changed," said Waddell & Reed CIO Henry Herrmann. "There is a great deal more skepticism and concern. I don’t think we are going to have significant economic weakness. I think we will have moderate growth with low inflation. Once people buy into that, we can get moderate gains in the market."

According to The Journal, investor habits are not only hard to gauge, but hard to predict. But one thing is certain: Investors currently hold 30% worth of cash in their portfolios, above the 17-year-average of 25%, according to an American Association of Individual Investors survey.

And now that new AMG data shows mutual funds posting net inflows in August, maybe that cash is already starting to go somewhere.

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Money Management Executive
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