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Fiscal cliff fatigue

By Sheyna Steiner · Bankrate.com
Thursday, November 15, 2012
Posted: 11 am ET

What will everyone fret about after the fiscal cliff debacle has been cleared up? Most of us could probably live our entire lives without hearing the phrase "fiscal cliff" ever again.

Anyway, last week's stock market tumble has been ascribed to fiscal-cliff fears by the economists at High Frequency Economics in a note published on Nov. 13. According to the note, "The drop in equities last week -- apparently due in large part to an intensification of fiscal cliff fears -- threatens to drag confidence and momentum down again."

The economists also predict economic growth to Ping-Pong up and down, along with the equity market.

More up-and-down motion in the equity market could be unsettling for investors -- if they were actually in the equities market. Many have yet to recover from the drop in 2008, according to a recent survey by the global investment management firm, T. Rowe Price.

Though 61 percent of investors rank investing in stocks as very important or important to their long-term goals, 37 percent of investors aren't investing in the stock market at all, the survey reports.

Just as a stopped watch is correct twice a day, people who shun stocks entirely are vindicated when the bottom drops out of the market. But just avoiding market volatility won't get them to their financial goals without the secret ingredient of growth.

"The lack of faith in equities, even among long-term investors, is troubling," said Stuart Ritter, CFP professional and senior financial planner with T. Rowe Price, in a press release. "Historically stocks have provided more long-term growth opportunities than bonds, short-term investments or other vehicles that are generally considered to be more conservative."

Nonetheless, many investors want no truck with them, especially now that the looming fiscal cliff is turning into the rapidly approaching fiscal cliff. Exchange-traded fund inflows slowed last month, Morningstar reported on Nov. 6. "Just $1.9 billion of new money trickled into exchange-traded funds in October following the strong $33 billion that poured in during September," according to the story, "ETF inflows slow to a trickle in October," by Michael Rawson, CFA.

Mutual funds fared worse, with all equity funds seeing outflows of about $21 billion in the last week of September plus the month of October, according to the Investment Company Institute, the trade group for investment companies in the U.S.

Are you avoiding stocks?

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