March 19, 2018 / 11:02 AM / in 5 months

RPT-ANALYSIS-Ten years after crash, Americans still have not fallen back in love with stocks

 (Repeats Sunday story with no changes to text)
    By David Randall and April Joyner
    NEW YORK, March 18 (Reuters) - Luke Thomas, 44, an
information technology field manager who lives in Miami, began
investing in the U.S. stock market in his early 20s, attracted
by the prospect of learning “how to grow a little bit of money
into a lot,” he said.
    At the time, he put most of his money into a handful of
small-cap and over-the-counter stocks. Yet watching the Russell
2000 index of small-cap companies fall more than 60 percent
during the 2008-2009 financial crisis scared him into
diversifying his portfolio. He now invests in large-cap stocks,
real estate, options, and cryptocurrencies such as bitcoin,
spreading his risk over several asset classes. 
    “A younger Luke would have focused 90 percent on crypto,
putting all my eggs in one basket. But this way, I’m not overly
exposed,” he said. 
    Thomas is not alone in his hesitation to make big bets. 
    Ten years after the start of the financial crisis that
erased $16.4 trillion in assets from U.S. households, Americans
have yet to embrace the U.S. stock market with the same fervor
as before, holding fewer individual stocks and putting less
money into equities overall despite an uninterrupted 9-year bull
market that has pushed the S&P 500        up nearly 310 percent
from its 2009 lows.
    Overall, U.S. households have $900 billion less invested in
stocks than in 2007, according to Goldman Sachs research,
leaving buying by U.S. corporations now the greatest driver of
demand. In 401(k) retirement plans, meanwhile, investors now
hold an average of 52.4 percent in equity-only funds, down from
the 64.7 percent they held in 2007, according to Fidelity.
    Instead, investors now hold an average of 33.2 percent of
their assets in blended target-date funds that combine stocks,
bonds and cash based on a person's expected retirement date,
more than double the 14.5 percent of assets invested in the
category in 2007.
    The decline in the assets invested in stocks comes even as
investors have largely benefited from the recovery in equity
prices. The average 401(k) balance at the end of 2017 was
$104,300, up 112 percent from the average of $49,000 at the end
of 2008 and up 54 percent from the pre-crisis average of $67,600
at the end of 2007, according to Fidelity. 
    "There just doesn't seem to be the same level of interest or
animal spirits" among investors now for equities, said Mark
Paccione, director of investment research at Raleigh, North
Carolina-based Captrust Financial Advisors, which oversees $250
billion in assets. 
    Clients are much more concerned about the effect of rising
interest rates and inflation on their bond portfolios, he said.
    "They're very worried we will have a bear market in bonds
and direct almost all of their focus there," he said. 
    Investors are not only holding fewer assets in stocks
overall, but those dollars that are invested in the market are
increasingly likely to be put into index funds or
exchange-traded funds that track broad indexes rather than in
individual shares or funds that are run by a stockpicker. 
    Financial advisors say that the push is driven by clients
who lost trust in the ability of professional fund managers
after nearly all of them failed to anticipate the financial
    "Index investing is more prevalent than it's ever been, and
that's because active management didn't protect you from losses
during the crisis and has underperformed over the last 10
years," said Matt Hanson, a senior wealth advisor at Los-Angeles
based Kayne Anderson Rudnick, which oversees approximately $18.9
billion in assets. 
    Passive funds now comprise about 46 percent of total mutual
fund and ETF assets, compared with just 8 percent in early 2008,
according to fund-tracker Morningstar. There are now 1,400
passively managed equity mutual funds and ETFs, with a total of
$5.4 trillion in assets, compared with 707 funds holding $1.2
trillion in 2007, according to Lipper data. That push toward
passive investing has helped make index-based fund providers
BlackRock Inc         and privately-held Vanguard the world's
two largest money managers.
    The growth rates of the trading of options are accelerating
faster at brokers such as E Trade Financial          and TD
Ameritrade than they are for the trading of individual equity
shares, said Mac Sykes, an analyst at Gabelli & Co. Monthly
stock trading volume for the NYSE Group, meanwhile, was 43
percent lower in 2017 than in 2007, according to NYSE data. 
    Instead of the day-traders of the 1990s dot-com craze or the
house-flippers of the mid-2000s, small-scale investors say they
are looking for cryptocurrencies such as bitcoin        to
deliver the outsized returns they no longer believe the stock
market can deliver. 
    Layla Tabatabaie, an entrepreneur and advisor to tech
startups who lives in New York, began investing in initial coin
offerings, or ICOs, about a year and a half ago, she said. She
now holds the majority of her portfolio in cryptocurrencies,
which she sees as offering the possibility for greater gains.
    “The way that I see crypto as being more favorable than
stocks is it seems like there is more of an opportunity for
retail investors to get in earlier," she said. "Crypto now is
taking the place of the way stocks used to behave 10 years ago,
15 years ago."

 (Reporting by David Randall; Editing by Alden Bentley, Jennifer
Ablan and James Dalgleish)
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