Americans are allocating a smaller share of their spending to investment-related fees since the recession, a sign they are still wary of returning to financial markets even as stocks trade near record highs.
Spending on expenses including securities commissions, investment advice and custodial services totaled about $150.8 billion in February at a seasonally-adjusted annual rate, Commerce Department data show. That accounted for 1.3 percent of total personal consumption, matching the average since the 18- month recession ended in June 2009, compared with 1.6 percent in the 12 months before the downturn started. March figures are scheduled to be released April 29.
“People are shying away from stocks since the recession, reflecting a very conservative approach to investing,” said Stuart Hoffman, chief economist at PNC Financial Services Group Inc. in Pittsburgh. Even though stock indexes have more than doubled since March 2009, consumers “haven’t really re-engaged in equities again.”
The Standard & Poor’s 500 Index closed at a record 1,593.37 on April 11, up almost 136 percent from the March 9, 2009 low of 676.53. Americans aren’t budgeting as much for investment activities, suggesting many people haven’t recouped losses from the stock market’s rout, even with the ensuing bull market, said Komal Sri-Kumar, founder of Sri-Kumar Global Strategies Inc. in Santa Monica, California, and chairman of the comprehensive asset allocation committee at TCW Group Inc., which oversees $750 million in assets.
Fund Outflows
Outflows from U.S.-based stock mutual funds totaled about $1.4 billion in February and have been negative for 36 out of 44 months since the recession ended, according to data from the Investment Company Institute in Washington. This illustrates “individual investors’ reluctance to participate in the equity market rally,” Sri-Kumar said. “Consumer enthusiasm just doesn’t exist right now, particularly for stocks.”
The experience of the past several years has made a “much more conservative trader” out of Fred Alexander Rodriguez, 34, a New Yorker working in information technology. Whereas investing in the stock market was a “no-brainer” before the recession, after buying a home in 2007 and watching its value decrease, as well as that of his 401K retirement plan, Rodriguez said his views have “changed pretty dramatically.”
Intestinal Fortitude
“I don’t have the intestinal fortitude to gamble like I did and see no need to trade like a cowboy,” Rodriguez said, adding that the amount he spends on investing also has decreased because he now executes about one trade a month, down from as many as eight. “Everything that I thought I understood about the market seemed to wash away and get replaced with doubts and fears.”
While Rodriguez has stayed in the market, some who were financially hurt by the recession and dropped out are finding it “very intimidating to jump back in,” said Charles Rotblut, of the American Association of Individual Investors in Chicago, a membership organization with an average age of 65. There’s an “underlying sense of bearishness and frustration” that’s made some people “check out of the market altogether,” said Rotblut, editor of the AAII Journal.