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Small investors pulling out of U.S. stock funds

"Where Does the Money Go?: Your Guided Tour to the Federal Budget Crisis" by Scott Bittle and Jean Johnson

TEXT OF STORY

Bill Radke:I am glad [John Challenger]'s optimistic, because it sure doesn't seem like investors are. The New York Times says investors withdrew more than $33 billion from domestic stock market mutual funds just in the first seven months of this year -- trust me, that's a lot.

Marketplace's Alisa Roth set out to learn where all that cash is going. And she found that while money is moving around in the markets, it's not all going one way.


Alisa Roth: The data behind the New York Times' sensational headline comes from the Investment Company Institute. It's a trade association for investment companies, places like mutual funds.

Brian Reid is chief economist there. He says it is true, people aren't buying as many American stock funds, but that's not the whole story.

Brian Reid: On the other hand, we've seen relatively steady inflows into funds investing in stocks of foreign companies.

And investors aren't hiding the rest of their money under mattresses. Actually, Reid says, it's impossible to know where people are putting money. It could be going into bond funds, which are doing well right now.

Reid: Any time we're in an environment in which interest rates are falling and bond returns are rising as bond prices rise, we find investor demands for bond funds pick up.

One reason investors might be taking money out of stocks is because they're nervous. Debra Nieman's a certified financial planner in Massachusetts. She says some of her older clients have gotten scared and are taking their money out of stocks. But that's because they already have enough money to retire. But she says some younger people are sticking it out.

Debra Nieman: Younger folks, some are more willing to just be all in, if you will, and just ride the markets, you know, knowing that they have a longer term horizon. And others who may have been more cautious in the past are a little more cautious, and they may be have reallocated, scaled back a little on their equity exposure.

In other words, some investors are getting out. But there are plenty of others who want in.

In New York, I'm Alisa Roth for Marketplace.

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