Weekly swings in money flows don't necessarily make a trend, but there's always hope. Billions of dollars have been shifting out of money market funds and into equity and bond funds, according to EPFR Global, a Cambridge, Mass., company that tracks fund flows and asset allocation data.
Perhaps investors are tired of low-yielding safe havens such as money market funds, CDs and money market accounts. The Crane 100 Money Fund Index has an average seven-day yield of 0.43 percent. Standard money market accounts and six-month CDs are carrying average yields of 0.45 percent and 1.09 percent, respectively, according to Bankrate.com surveys.
When whiffs of halfway decent economic news are in the air almost daily, they're sure to lure investors back into the water. But it's like the first signs of spring. Are they real, or is winter going to roar back with bitter-cold wind and another 15 inches of snow?
"What would really tell me that it has shifted is if the outflows from the money market funds become pretty regular and we see the money showing up in roughly comparable amounts in the bond and equity fund universes that we track," says Cameron Brandt, senior analyst at EPFR Global.
"We haven't seen that yet. We're seeing money being pulled out of the money market funds, and we're definitely seeing a bit more in terms of fund flows into several of the major equity fund groups, but the money's not rushing straight out of the money market funds into the fund groups yet."
Peter Crane, publisher of Crane Data and Money Fund Intelligence, says the 0.43 percent average seven-day yield for money funds is an all-time low since the statistic has been tracked and is a direct result of the zero percent to 0.25 percent federal funds rate. Crane agrees that investor appetite for risk has increased but suspects that it's new money that's going into the stock and bond markets.
"On the 15th of every month there are tax-related movements, so it may just be that the outflows were seasonal, but given the jump in the stock market it appears that you're getting money that's seeking out more risk. The Fed's actions always work; people just forget that they take a lot of time."
Don't lose your nerveIf you're an investor who has been reducing portfolio risk during the downturn, you may need to consider whether your investments, risk tolerance, goals and time horizon are in sync. On the other hand, going too far to the conservative side of the field isn't good either, says Herb Hopwood, president of Hopwood Financial Services in Great Falls, Va.
"My fear is that the market will shake the confidence of, potentially, a whole group of investors who should be in equities but are going to wonder why. You get someone who's 35 and for the last 10 years they've been putting money into the market and now they're underwater. A 35-year-old who is not at least 70 percent in equities in their 401(k) plan is crazy. Also, when I hear people say that they're not going to put any more money in their 401(k), that's just wrong."
Hopwood says he thinks the market is putting in a bottom but that the economy might not get better until sometime in 2010 at the earliest. He says consumers should take their time buying equities and worries that the current rally may mean investors are getting ahead of themselves. But Hopwood says there are some good opportunities in the fixed-income market and he's offered some tips on the next page. Keep in mind that you're the only one who can judge if a particular investment is right for your risk profile, your goals and your time horizon.