For every $100 that’s gone in stock market mutual funds and ETFs, only $2 has flowed out

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Slowly and steadily retail investors may be learning the ropes of stock market investing. More than trying to time the market, it’s the time in the market that finally matters – goes an age old saying. The assets under management show the retail investors have not left the market despite the market drop witnessed recently.

With US stocks dwindling since the start of 2022, the leading indices paints a gloomy picture. Retail investors, in spite of lots of red in their portfolio, may just not be ready to quit and exit their investments. According to Scott Rubner, managing director in the Global Markets Division at Goldman Sachs – For every $100 that’s gone in stock-market mutual funds and exchange-traded funds during the past 74 weeks, only $2 has flowed out. That’s the opposite of professional investors, he says, most of whom have already exited the market. Retail and households are the largest owners of the equity market.

But, will the trend continue and will retail investors remain invested even at lower levels. Rubner said – I only expect it to come out if the market were to materially move lower from current levels, and I view that as down 10%. A way to calculate that is by looking at the average level for the S&P 500 when this investment was flowing in, and then calculate a 10% drop from that average. And down 10% from the average in S&P-equivalent terms is about 3,800. The market is up materially from that level, at about 4,088.

S&P 500 and Nasdaq linked ETF’s and funds remain a popular choice with retail investors. “The market has had a robust period of inflows over 74 weeks. That money mostly went into U.S. products — S&P 500 and Nasdaq. And by buying passive ETFs you are buying those top five stocks — the big tech companies. That by definition is the largest and most-owned place that investors had been hiding,” said Rubner.

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