I was asked to comment on an article that appeared in today’s Ignites (A Financial Times Service) about the fact that bond and index funds were the top five asset gathers for the first half of the year.
These results are not surprising to me, as this reflects investors’ “overall negative mood on equities and aversion to risk. Investors in equities have not been rewarded over the past decade, and the gyrations of the past few years — where the calendar years have started out great and then fizzled — have not helped this confidence. Record amounts of money have been kept on the sidelines, and given that there is little optimism that the equity markets are going to perform very well until all of the political uncertainty here and abroad subsides, those individual investors who choose to leave cash are looking for safety. Institutional investors continue to dominate the marketplace.”
While there are risks to investing in bonds and bond funds, of course, is it typically less than investing in stocks.
The above explanation covers investing in bond funds, but why index funds as well? To quote from the article again: “The growing concern that institutions “have and will continue to have the advantage over individuals” is also partially responsible for making index funds the “vehicle of choice” for investors willing to take on the inherent risk in the stock market, according to Klausner. We all know that the stock market is a market of individual stocks, and it is becoming harder and harder for individuals to manage their own portfolios. Index funds are a good alternative,” he says.”
Do you agree?
