Investors threw caution to the wind in January. After months of net outflows to stock and mutual funds, January saw a record $77.4 billion pour into traditional stock funds and exchange traded stock funds.
That according to TrimTabs.com, the company that tracks money flows in and out of the stock market. This week they reported that January’s inflow was $23.7 billion greater than the previous record, set in February 2000.
“The recent strength in the U.S. stock market seems to have rekindled investor interest in equity funds,” said Vanguard spokesman John Woerth, whose clients invested $20 billion in Vanguard stock funds and ETFs in January.
Which begs the question: Have near-sighted American investors lost their eyeglass prescriptions? Because if you look just beyond the screaming “S&P Nears All-Time High!” headlines, you run smack dab into such sobering facts as:
• The S&P 500 decreased by 3% from 2000 to 2012.
• If we factor in dividends, the total return of the S&P 500 since 2000 was 22%, or an average return of 1.7% per year.
From that 1.7% we have to subtract inflation (2.7% per year). We have to subtract fees (mutual fund and 401k fees can average up to 1% per year or more). And we have to subtract taxes (reminder: if you’re investing within an IRA or 401k, you’re simply postponing taxes, not eliminating them).
After all that subtraction, many buy-and-hold stock market investors are either break even, or under water. And they’re 13 years closer to retirement. Minus 13 years of growth and compounding they can never get back. Which may explain why 2 out of 3 workers say they’re behind schedule in saving for retirement.
Meanwhile, has the stock market cancelled home delivery of the Wall Street Journal? Is performance now based on virtual reality? How else to explain a rising market when:
• The economy actually shrank last quarter.
• Washington is playing ostrich regarding runaway spending and debt.
• Taxes are on the rise.
It’s a head-scratcher. Doesn’t exactly feel like solid footing. And does the general public have a good track record for timing their stock market buys? The previous record inflow month was February 2000. That’s exactly one month before the 2000-02 bear market started, when the Dow plunged 49%.
Paul Partridge is a senior partner at Sage Financial Partners, specializing in lifetime income strategies and tax-free retirement. Sage Financial Partners is a Registered Investment Advisory firm and member of FINRA and the Better Business Bureau. The information above is not intended to be and should not be considered investment or tax advice.