Did February's Market Volatility Create Smarter Investors?
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Did February’s market swings prompt investors to panic or reflect?
This is Your Money Matters from The Wall Street Journal. Welcome to Your Money Matters. I'm J.R. Whalen in New York. February's steep stock market declines and strong volatility put a scare on investors and many on Wall Street. But did the market gyrations actually change the way some investors approach the market? Wall Street Journal reporter Christina Rexrode joins us to discuss. So Christina, a favorite pastime of some investors is to try to time the market. And the sharp declines might have encouraged some to cash out and then find the right time to get back in. But some investors she spoke to didn't fall for the bait or the so-called fear of missing out.
A lot of the people we spoke to actually said that they had tried to time the market before. Maybe in 2008 when the market was crashing, they got out of stocks or, you know, pick any other time. We talked to some people who said that they sold all their stock holdings when Donald Trump became president because they were betting that the market was going to crash then.
Well, the night he was elected, the market dropped 600 or 700 points.
Right. So they had a reason for thinking that. But then, of course, it's been on a tear since then. So these people were feeling a little humbled. I think that they thought at this point that that had not worked out for them previously, that they had missed out on the subsequent run-up. And this is also part of something that the journal has written a lot about where people are overall just moving toward more passive investing where they are not trying to pick individual stocks, but that they are just buying indexes of stocks and letting them be.
And, you know, despite the fact that people stayed in the market and they decided to wait it out, given all the ups and downs, there was still a record amount of money pulled out of the market from mutual funds and ETFs.
That's true, although that has slowed in the past week. And I think that's an important distinction. I wouldn't say that people are feeling incredibly bullish about the market, but more so that it's better to be in than out. And also, I mean, one reason, frankly, is there's not a lot of other places to put your money. Like 10 years ago, you could have put your money in bonds and gotten, you know, an okay return. And that just isn't going to happen now.
You mentioned that in your story, that even though interest rates are rising,
Why did some investors decide against timing the market this time?
albeit slowly, bonds and cash really are not seen as wise alternatives to stocks currently.
So some of the people that we spoke to, you know, they said that they even thought about putting their money in bonds or even moving to cash and maybe talked to their financial advisors about this. The thing about that, though, is that they are, if they do that, they're pretty sure what's going to happen to their money, which if it's in cash, it's just going to sit there And if it's in bonds, it's going to grow, but very, very slowly, where if they stay in stocks, yes, their investment might go down, but it also has the opportunity to go up.
So people really are honoring the advice that they often get, and that is be in it for the long-term investment.
Yeah, according to the people we spoke to. Now, two other themes that came up among people was one, they said, we wrote a lot in 2008 about how retail investors or rank and file investors then at that time really were rushing for the exits and Did sell a lot of stock. People pointed out to us that this time feels a little different. And if you remember 2008, there were a lot more Wall Street scandals. There were investing scandals like Bernie Madoff. So people felt had a lot less confidence even in the integrity of the market.
Sure. Lehman Brothers collapsing over a weekend.
Right.
How did past experiences like 2008 change investor behavior?
And so, you know, everyone invested in that or invested in Wachovia or invested in Bear Stearns saw a lot of their money disappear overnight. Now, I would say that there is a risk in this in that people could be a little complacent and maybe just never rearrange their portfolio or maintain it or not notice when something seriously is wrong.
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