Small-time investors are moving away from stock-market euphoria, not toward it
Over the past month, small investors have pulled $17 billion out of U.S. stock mutual funds and exchange-traded funds and added $29 billion to bond funds.
.. Financial advisers, many of whom “rebalance” or periodically adjust portfolios to keep them in line with pre-set proportions in stocks and bonds, control more than $5.5 trillion in assets, the Wall Street Journal recently found. And target-date funds, those retirement-saving portfolios that automatically scale back their stockholdings as investors age, held $998 billion in assets as of June 30, according to Morningstar.
.. “More and more money is being invested according to asset-allocation strategies,” says Brian Reid, the ICI’s chief economist.
.. The math is simple: If you had a target of 50% in stocks and they go up 10%, you are suddenly off-target, with more than half your money there. Your financial adviser or target-date fund will automatically sell stock and buy bonds to get you back to 50%... As Mr. Koehler puts it, the most common question his firm heard from clients back in 1999 was “Should I just buy Cisco?” (Cisco Systems was then one of the hottest technology stocks.) Now, he says, it is: “Do we have the right mix of stocks and bonds and cash?”
Welcome to the homeostatic market. In biology, homeostasis is the process by which living organisms regulate vital aspects of their internal environment, keeping such factors as body temperature or chemical balances close to their “set points” or target values.