Investors stood pat during February correction

Some individual investors even added to their stock holdings last month, survey shows.
MAR 19, 2018

Those flighty individual investors didn't flee the stock market during February's correction — which means the panicking was left to Wall Street's pros. Just 6% of individual investors were net sellers during the February correction, according to a survey of 1,063 adults with investment accounts conducted by Bankrate.com. Another 15% added to their investments, while 60% intentionally did nothing. (Sixteen percent were unaware of the sell-off altogether.) Traders pushed the Standard & Poor's 500 stock index down 10.2% from Jan. 26 through Feb. 8. The big fears at the time: Higher interest rates, thanks to a better-than-expected jobs report, and the possibility of a trade war sparked by President Donald J. Trump's promise to impose tariffs on steel and aluminum. "I think the public's reaction depends on the severity or length of the correction," said Bankrate.com analyst Taylor Tepper. "Because the sell-off was contained to two weeks and prompted by good economic news, it wasn't on the top of people's minds." The Bankrate.com survey found that fewer than half those surveyed — 43% — have investment accounts at all. The likelihood of having an investment account increases with age, income and education. About 26% of millennials increased their stock contributions during the correction, compared to 9% of baby boomers. So who was doing all that selling? Probably professional money managers. "Most individual investors have 401(k)s and individual retirement accounts that are managed by professionals," said Sam Stovall, chief envestment strategist for U.S. equities at CFRA. "The number of individuals investing continues to decline." It's unlikely that most active mutual fund managers were behind the abrupt fall in the market. Morningstar Inc. estimates that Vanguard investors shoveled a net $19.1 billion into its funds in February, while Fidelity saw net inflows of $19 billion and the American Funds welcomed $2.4 billion in net new cash. "People didn't freak out over a little dip, which was good," Mr. Tepper said. Who were the culprits, then? Mr. Stovall suggests it was traders. "Those who are trading-oriented are looking to create volatility," he said. "They want volatility the same way a surfer wants waves." Nevertheless, advisers shouldn't assume that investors will be as well-behaved in the future as they were in February. "I don't think investors ever learn their lesson when it comes to emotions," Mr. Stovall said. "Even though they are taught to buy, hold and close their eyes, they frequently like to peek."

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