Lipper Research Senior Analyst Don Cassidy on "Business for Breakfast" 1060 KRCN Tuesday - The Latest Money Flows
Tuesday, September 27, 2005
Q. Don, have you folks at Lipper compiled the latest numbers on wheremutual funds investors are putting their money now?A. Yes, but I must say the flows have been quite small.
Q. Well, the market was flat to lower in August, and after all, it wasAugust, not exactly the busiest month on Wall Street.
A. True, but the net flows into equity funds were well below the 10-yearaverage of about $10 for Augusts.
Q. So, what were these small numbers?
A. Bond Funds, about +4.1 $Billion
- Equity Funds, about +3.6 $Billion
Q. That is pretty sparse on the equity side, since people normally put alot more into stock funds than into bond funds.
A. Absolutely right! By about three or four to one. And when you look atthe details of the equity-funds flows, the numbers are of even moreconcern.
- Stock funds +0.6
- Mixed equity (Balanced, etc) +3.0 -- mainly cautious and oriented toincome rather than growing capital
- Domestic funds -5.2
- World +5.8 where the "action" was (falling dollar). And even then,about half was institutional.
Q. When we talk in billions, people might glaze over a bit. Can you maybeput the numbers in terms of per investor?
A. Sure. The Investment Company Institute (ICI) says there are about 90million mutual funds investors. So if you divide about $3.6 Billion by 90million, it comes out to roughly $40 per person. But remember, about halfof the total was institutional net buying, so now we're talking $20 perperson for the month. That's about as much as one mocha latte per day forone week!
Q. Well, even though August was before Hurricane Katrina, the price ofgasoline was over $2, and that must have been pinching people.
A. Retail sales had been perking along quite nicely for months even whilegas rose (people except at the low-income end were just putting it on theirplastic.) I think gas vs. retirement saving is just a convenient excuse. Wehave a low savings rate, and borrowing vs investing is a state of mind.
Q. But how about all the money people regularly put into funds at work via401(k)'s and so on?
A. That's roughly $100 billion a year into stock funds -- maybe about $8-$9billion a month, and it is included in the flows I gave. So we actually sawoutflows on a current-decision basis.
Q. Well, the market in 2005 has been choppy and unexciting. And certainlythe news background has been less than positive.
A. All of that is true. But success in investing requires that we buy lowtoo, not just when the market is high and feeling friendly. Accumulationover time requires adding money every month, not just when the current newsand market trend are exciting and fun.
Q. So, what do you think investors need to do?
A. First, think hard about their future security. That implies "payingyourself first" in terms of automatic investing -- rather than doing itonly when there happens to be money left over or only when the market getshot and exciting.
Q. And second?
A. Figure out your own risk tolerance -- which means choosing some fundtypes you can sleep on while owning. Maybe one of those life-cycle typeswill do it. Maybe it means a Balanced fund. But choose something, or somecombination, that will not scare you into stopping when the market takes aswoon. In other words, get rid of the likely excuses and rationalizationsfor not investing. No one is going to take care of you in your old age, inthe style you like, unless you provide for yourself.
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Don Cassidy is a Senior Research Analyst at Lipper specializing in fund flows, exchange-traded funds, (ETFs), closed-end funds, equity fund performance, and author of Trading on Volume (McGraw-HIll).
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