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In the Year 2000: Mutual Fund Flow Memories

Posted: January 15, 2013

Author: Jonathan Hoenig

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Investors have pulled money out of stock mutual funds nearly continuously for the past six years over economic fears and, more recently, the “fiscal cliff“.  $90 billion was withdrawn from U.S. stock mutual funds in 2012, the largest since 2008.  Over $400 billion has been taken out since 2007.

Instead, money has flooded into bond mutual funds, which garnered $317 billion in new investments during 2009, nearly besting 2008’s record inflow of $350 billion.  Since 2007, $1.14 trillion has gone into bond funds, nearly 3x the amount pulled out of stocks, according to data complied by the Associated Press.

It wasn’t always this way.  “Before 2008, for every dollar in new cash that bond funds attracted, stock funds typically drew $2. It was rare for more money to flow out of stock funds than in, during a given year”, recalls AP author Mark Jewell.

Thirteen years ago, investors were doing just the opposite, pouring money into stock mutual funds and yanking it out of bonds.  $309 billion was invested into stock funds that year, while bond funds saw $48 billion in outflows, adding to the $6 billion withdrawn in 1999.

I spoke with journalist Phil Ponce on Chicago Tonight in January 2000 amid that euphoria, warning how most stockholders had never seen a bear market and were unprepared for potential declines.

After a nearly half-decade rush into fixed income and almost uninterrupted 30-year bull market, you can now make the same cautionary claim about bonds, which most of today’s investors can’t recall ever going down.

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