With Market Volatility Subsiding, how will you Invest in 2009?
According to the Financial Times, $320 billion in net outflows occurred in stock, bond, and balanced (stock +bond) mutual funds in 2008, an annual record for dollar amounts and percentage of assets. Most of that outflow occurred from October through December. At the same time, money market (cash) accounts enjoyed net inflows of $422 billion during the year.
Stock Market Volatility Ruled From October and November
This massive movement from mutual funds to money market accounts really points to investors getting scared and running from the volatile stock market. The first 8 days of October resulted in a 22.6% loss in the S&P 500, at which point the Volatility Index (ticker: VIX) skyrocketed.
Here’s a look at the VIX, which measures market trading volatility from August of 2008, through the end of the year:
The below chart shows a doubling in volatility from the start of October to a high point of about 80, at the time when many people started running scared from stocks. Since then, volatility levels have decreased to 40, which is back to pre-October, and pre-crash levels.
After those first 8 days in October, the S&P 500 has experienced a 4% gain through this past Friday (Jan. 4, 09′). So, the end result of cashing in your funds and avoiding all the market chaos would have saved you – OK, it wouldn’t haven’t saved you, you actually would have avoided a 4% gain.
Where does the Stock Market Go from here?
Volatility has been cut in half and has been trending downwards. The market is taking bad news in stride, which could be a sign of stability on the way to a rebound.
With workers reallocating their funds and seeing more market stability at the same time, I would expect that fund inflows would pick up again in early 2009. Of course, when funds have money and stocks are relatively inexpensive, stocks also benefit (funds have to buy something, right?).
Also, for all of those employees who had maxed out their 401k’s earlier in the year and are now starting out fresh, you can expect more cash inflows going back into funds.
At the same time, political optimism seems to have settled many people’s fear. All of these things together point towards a solid start to 2009. What do you think will happen?
What are your Thoughts on Investing in 2009?
- What do you think the market will do in 2009?
- Have your fears subsided?
- Are you confident that the U.S. economy will rebound this year?
- How are you investing in 2009? Take the poll!
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I’m actually going to be kicking up to a higher % towards my 401k, which has and will be 100% stocks for a while. Hopefully, Obama’s policies will be looked at favorably by the market. I do think we’ve hit bottom.
I’m in a bit of an odd spot for investing, given that I’m also paying for college, living expenses and trying to start a small business. However, my portfolio is currently extremely even between bonds, gold and stocks. I wouldn’t usually invest in gold, but given an extreme probability of inflation and the dirt cheap prices…I couldn’t resist. =)
I have nearly 100% of my investment funds in stocks, and I don’t plan to change that any time soon. And honestly, I don’t care what the market does in 2009. Or 2010. Or 2011. You get the point – what the market looks like 25 or 30 years from now is much more important to me – since that’s when I’ll be moving more money out of stocks and into more conservative investments in preparation for retirement (which will still be a good 10 years away at that point).
I suppose I should clarify that – I’m not worried right now, because all of my long-term investments are in retirement funds which I can’t touch for many years anyway. When I start investing for long-term gains outside of my retirement funds (ideally so that I can retire long before I’m of official retirement age), THEN I’ll be much more concerned about the short-term moves of the stock market! That probably won’t happen until after grad school though.
I don’t think stocks will ever reach the returns that they have seen in the past, so I am investing a higher portion of our assets in bonds and alternative investments.
This year I will be a more aggressive trader and will try to beat out 80% return. Regardless of overall market activity, there are many great beat down stocks that are poised to pop in 2009. Once the dust fully begins to settle, I think the markets should move in an upward direction for the majority of the year. I dont expect the DOW and its old levels but can see general upside as more people get into the markets that have been sitting on the sidelines.
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