After a lackluster decade and the more recent quick market swings, the average retail investor has been disengaged with the equities market. Trading volume in stocks and exchange traded funds is lighter than usual as apathetic investors lay low.
Barry Ritholtz, chief executive of FusionIQ, a quantitative research firm, for The Washington Post points out that investors are “scarred and scared.” [VIX ETFs Keep Falling Despite Rally Doubts]
The S&P 500 is back around its 2012 highs while the CBOE Volatility Index, or VIX, reflects greater complacency within the markets, which indicates that investors seem to be incredulous about the current slow and painful recovery. [‘Most Hated Rally’ Lifts Stock ETFs for Sixth Week]
Investors witnessed a 57% plunge from the 2007 peak and 2009 bottom. Currently, markets are relatively unchanged since the 1999 dot-com era highs. The appetite for risk isn’t quite there, yet.
It wasn’t just the tech stocks that got blindsided. We are still in the midst of a real estate bust that started in 2006, although some are calling the housing bottom. After the recent financial depression of 2008, investors got rolled by another crisis from the Eurozone, namely Greece and the other troubled peripheral states.
Consequently, for the average investor, investing is no longer fun. Still, once we get more momentum behind us with higher levels than now, the average retail investor may begin to gingerly step back in. Meanwhile, potential investors should try not to stick to a herd mentality or ignore potential opportunities.
For instance, Ritholtz points to the shifts in attitude toward stock picking as correlation among equities rise. Consequently, as it becomes more difficult to pick out a winner, investors have looked to ETFs that offer broad exposure that helps provide diversification opportunities, with the added advantages of lower costs, fees, taxes and turnovers.
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Max Chen contributed to this article.