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Investors Look Bear in the Mouth

A survey released by the Investment Company Institute and the Securities Industry Association (trade groups for financial services firms) claims that 84.3 million Americans now own equities, either through mutual funds or individual stocks. That's up 7.1% from 1999's levels, the last year of the bull market.

If these extrapolations derived from interviews conducted with 4,009 "financial decision-makers" last January are accurate, more Americans are seeing the current bear market as a buying opportunity than a reason to flee.

One reason for this is the decidedly long-term outlook of most investors: 96% of investors said they were in for the long haul, and 86% characterized themselves as buy-and-hold investors. Nearly the same percentage of respondents reported making a stock transaction in 2001 (40%) as in 1998 (42%) -- even though 2001 was a down year for equities, and 1998 was up.

However, it appears people aren't venturing into the market alone. Of those surveyed, 58% said they rely on professional financial advice, and 45% said they bought a mutual fund through a full-service broker, up 33% from 1999.

Other tidbits:

  • For nearly half of investors, the value of their equity assets is less than $50,000.

  • A whopping 89% of equity investors own stock mutual funds. Almost half (49%) owned individual stocks.

  • Most investors aren't new to the market: 44% first invested before 1990, and 26% entered between 1990 and 1995.

  • Americans are getting more conservative with their money: 36% indicated they invested in bonds, up from 22% in 1999, and those investing in money markets increased from 26% to 35%.

We applaud equity investors for having a long-term perspective; if you need the money in less than five years (perhaps even longer), look for alternatives to stocks. However, it's a bit disconcerting that more people are investing in mutual funds through full-service brokers, which means these folks are paying often-significant commissions.

Of course, it's only fair to compensate brokers for their services; if your advisor has made you a wealthier person, then it may have been a commission well-spent. But considering that the median income of an advisor in 2001 was $110,025, according to the Financial Planning Association, advisors are well-compensated for their expertise. Many investors would do just as well (if not better) by bypassing the middleman broker and investing in a no-load index fund.

There's nothing wrong with paying for financial advice -- as long as you're getting your money's worth.

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