Well, the markets and exchange traded funds (ETFs) have a hit a little turbulence, and risk-averse investors are responding by ditching them altogether. After a deep cutting recession and weeks of volatile trading, the investor mindset may have been drastically changed.

Investors pulled $33.12 billion from the domestic stock market mutual funds in the first seven months of the year, reports Graham Bowley for The New York Times. Traders have taken out $19.1 billion from domestic equity funds in May alone. If the trend continues, more money will be taken from mutual funds in 2010 than any other year since the 1980s, not including 2008 for obvious reasons.

Brian K. Reid, chief economist of the Investment Company Institute, remarks that “at this stage in the economic cycle, $10 to $20 billion would normally be flowing into domestic equity funds.” Loren Fox, a senior analyst at Strategic Insight, believes that “for a lot of ordinary people, the economic recovery does not feel real,” and investors won’t jump to the markets unless “they feel more confident of employment growth and the sustainability of the economic recovery.” [The Renewed Rush to Bond ETFs.]

According to Hewitt Associates, 401(k) accounts now hold around 57% in stocks, but the aging population are sticking it out with bonds and other fixed-income investments. The bond mutual fund market has seen $185.31 billion in inflows for the first seven months of the year.

According to Julie Coronado for MarketPlace, consumers are still shocked by the financial downturn and the fact that stocks are risky has hit home for many investors. Additionally, the tentative economic recovery has turned more consumers to saving than betting in the markets. Companies are also responding by issuing more bonds, especially since demand for this type of investment is rising.

What can you do?

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