2008 market haunts investors
Even as the stock market has recovered and even reached new all-time highs, that gut-wrenching drop continues to haunt investors, says Michael Gayed, CFA, co-portfolio manager of the ATAC Inflation Rotation Fund offered by Pension Partners LLC, an investment advisory firm in New York.
"What's changed is the speed with which people react to any kind of volatility because most, especially on the individual investor side, are still scarred by what happened in 2008," Gayed says.
That's led to investors being more skittish and quicker to abandon their stock portfolios when the markets have a bad day, he says.
"There is always this temptation to assume that an extreme event like that tends to repeat year after year, which is why we've seen, in general, not too much excitement in stocks and all this skepticism," Gayed says.
Technology is compounding the problem, he says.
"Anybody can log on to his account and see the value of his stocks, his bonds any second of the day on their phone, and most individual investors fail to understand that there is noise in price movements," Gayed says.
That can ultimately lead to rash behavior that ultimately undermines investors' long-term returns, Gayed says. It's also made investment managers much less likely to take risks to increase returns beyond what you might see in an index for fear of losing clients over short-term volatility, he says.