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What is Scaring Investors?

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    Edelman Financial Services CEO Ric Edelman on the factors causing investors to shift away from stocks.

  • Duration 4:18
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The stock market small investors are pulling their money out of stocks.

Since march of 2009 US stock mutual funds have had net withdrawals of 200 billion dollars.

While bond funds have seen an inflow of a trillion.

The percent Asian American families who own stocks now or stock funds dropping to 46%.

In 2011.

From 53%.

A decade prior so where exactly are investors putting their money and should you follow suit.

Ric Edelman is the CEO of settlement financial services -- always great to have you on the show.

Really appreciate your time.

You cannot think -- going to be with you -- you can't get away from the idea.

That it small investors have simply lost faith in the stock market why do you think that is and is it ever gonna change.

There are two reasons that happens and you've asked the most important question what will it change that there are two reasons that -- number one obviously we lost an awful lot of money.

And people are still shell shocked it was -- -- -- -- emotional upheaval that we went through and people are still dealing with an emotionally second.

People are -- scarred as a result and the biggest mistake they're making.

Is that they're confusing the stock market with the economy people think that -- one of the same -- factors are very separate things.

And that's why people don't understand how the stock market can be making money in a period when the economy is still so dreadful as you were just describing the last segment.

So people need to realize that the very reason the stock market is doing well is because the unemployment numbers are so low corporate America's number one expenses.

Payroll are you don't have much of a -- -- -- that's well naturally and you -- -- it's not what happened on your birthday easily kids.

I think -- thing that's really frightening is if you look back in history at times were people who pulled money out of stocks.

It goes on for a decade or so after 1929 the did return to its prior levels until the 1950s.

And beginning in 1971 investors with true.

Up from the stock market for at eleven years.

Now I know people like you are fond of saying well the average stock market return over the last 86 years has been 10% but the reality is nobody -- for 86 year.

You're absolutely right Jerry and that's why people are looking so closely at their recent past performance unfortunately they're assuming that the recent past.

Asked the last five years or ten years is going to be the next five or ten years people tend to invest looking in the rear view mirror.

If you drive that way you have car accidents we need to recognize that we have just had a horrific hurricane or tornado -- We -- it we're not gonna have another one actually and ten years army -- We will let you know we talk about 2008 in the fall in stocks and what happened.

But there are other things going on now that I think -- really unnerving small investors the flash crash.

All of this high frequency trading that is making the markets.

-- really strange and unpredictable it seems that what's going on on the exchanges is completely disconnected from fundamentals.

And I think that's exactly -- individual investor.

-- -- I think you're absolutely right and this is why our message is not trying to convince people to invest in stocks but convincing people to invest in.

Other than just.

Bonds and CDs and cash we have found the people -- just run to the flight to safety and they have abandoned the notion of diversification.

I'm not suggesting you have all of your money or even most of your money in stocks I'm just saying it's crazy to have none of your money in stocks.

Well and and there is a big fear of course that the bond market is the next big bubble.

That's actually are bigger fear of its really ironic that people who are terribly worried about stocks and -- swearing never touch it again.

What they don't realize is that the next big risk is not the stock market it's the bond market because interest rates are so low people don't understand that as interest rates rise which -- -- -- seems to think will happen eventually.

As interest rates rise bond prices go down -- That's really scary and people don't realize it.

Well Rick thanks for coming on you know I'm on your page I want people to be able to invest confidently in the stock market I think it's the only way to retire -- Get the kids through college and do everything you need to DO so -- -- turnaround thanks for coming on appreciate it.

Thanks -- any time.

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