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Will gains woo new investors?

By Greg Guenthner · Bankrate.com
Wednesday, January 16, 2013
Posted: 1 pm ET

A strong yet occasionally volatile stock market wasn’t enough to lure retail investors back into stocks last year.

Individual investors pulled approximately $152 billion out of the U.S. stock market in 2012, according to numbers compiled by CNNMoney. Despite double-digit gains courtesy of Standard & Poor's 500 index, few investors wanted to bet on equities.

Fears ranging from the "fiscal cliff" debacle to continued economic problems throughout the eurozone were the likely culprits behind the gloomy sentiment. One clue is the spike of fund outflows recorded in November as media coverage of fiscal-cliff worries intensified.

But with a New Year came a new and powerful rally in stocks.  Equities spiked right out of the gate once Congress reached a tentative fiscal-cliff resolution. The rally intensified in the following days. In the first two weeks of the year, the S&P 500 has gained more than 3 percent and posted a five-year high.

But will the rally stick? Will January's post-fiscal-cliff pop convince investors that it's safe to put their money back into equities?

The preliminary data suggest that the investing public is ready to give stocks another chance. Lipper reports massive amounts of money pouring into stock funds and exchange-traded funds to start the year -- a new (and abrupt) change of pace that has Wall Street buzzing, according to MarketWatch.

"Equity funds, including exchange-traded funds, took in $18.3 billion for the week ended Jan. 9, the fourth largest net inflows since Lipper began calculating weekly flows in January 1992," reports Marketwatch. "Some $10.8 billion poured into equity ETFs, while mutual funds took in more than $7.5 billion, their largest inflow since the week ended May 2, 2001."

Now that the federal government has removed some of the country's fiscal uncertainties from the headlines, it's clear many investors are quickly taking a "risk on" approach to the markets.

Of course, we're only two weeks into the New Year. But if these early numbers are any indication, Main Street investors could be ready to embrace the risks of equities for the first time since the 2008 financial crisis.

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Greg Guenthner, CMT, occasionally blogs about investing at Bankrate. The views expressed are entirely his own and do not reflect those of Bankrate.com.

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