The year has started with a bang as far as stock market investors are concerned. Yesterday, the Dow briefly crossed 13,000 for the first time since May 2008, and many traders are starting to consider whether investors are missing out on a significant rally if they stay on the sidelines, according to CNBC.
The Dow, with its limited index of 30 stocks, might signify more of an emotional rally in the minds of advisers, but the broader S&P 500 provides the bigger picture. It, too, has been rallying, ending the day Tuesday at 1,362, within striking distance of a three-year high.
Data compiled by Bloomberg since 1962 show the S&P index to be the cheapest ever when compared to bonds. Since 2009, profits have doubled, pushing the earnings yield to 7.1 percent when compared to the 10-year Treasury rate. Even so, investors pulled $135 billion out of stock mutual funds last year, the fifth year in a row they've continued to flee equities in favor of low-yielding cash.
Why the reluctance to invest in equities? As Wall Street erases the losses of the recession, only slight improvements in employment and housing are conspiring to keep the economy growing at a sluggish 2 percent overall. Many investors are also shell-shocked by the steep losses they incurred in 2008 and 2009 and prefer to sit on the bench rather than take a chance.
But don't let fear prevent you from building wealth. If you have a significant portion of your money in cash and fixed-income and the time horizon to invest, equities may help you reach your goals faster.
Are you considering moving money from safer investments into equities?
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