A majority of consumers saw 1998s market drop as an opportunity to buy, according to a December 1998 survey by Boston-based Dalbar. Fifty-nine percent saw the drop as an opportunity--a dramatic reversal of earlier Dalbar studies that showed investors tended to flee weak markets.
What weve found in preceding periods from 1984 through 1993 was that anytime the market dropped, in any month, [mutual fund] flows were in the wrong direction, says Dalbar President Lou Harvey. If bond funds dropped, inflows dropped, and the same was true with stocks.
The latest study shows consumers may have lost an irrational fear of losing everything in the market, which Dalbar attributes to better-educated investors.
More than half of mutual fund investors and 46% of stock buyers planned to continue investing as they had in the past, with about 20% in each group planning on investing more than they had been.
The study found that wrap programs and managed accounts are favored by consumers. That conclusion is based on what respondents echoed frequently about their preferred method of investing, Harvey says.
Its a different story for international investments, though. Almost half of consumers are shying away from overseas investments, the study found. A history of disappointment with the foreign sector is to blame, Harvey says.
Dalbar also found little demand for insurance products. Only 5% said they planned on adding to variable annuity holdings; fewer still indicated an interest in other types of investment-oriented insurance. Anemic interest in insurance was among the big surprises of the survey, Harvey says, adding that strong industry sales of annuities indicates the products are being sold, not bought.
Dalbar says the 1998 market experienced the largest ever spread between highs and lows, and the fastest decline and recovery in stock market history. In gauging how consumers reacted, the research firm surveyed 1,100 households with annual incomes of $50,000 or more.