Investors Cheer, Warily, as Stocks March Forward
Jack Keleher, a package machinist at a Tootsie Roll plant in Cambridge, Mass., used to dream of retiring early. Now his whim may one day come true - thanks to a surging stock market.Skip to next paragraph
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Mr. Keleher has seen the value of his retirement account, much of which is invested in equities, double in the past year. As a result, he's thinking more about his golf swing these days. "If this keeps up, I could retire by 55," he says.
Keleher isn't alone. Across the country, everyone from Buick dealers to mechanical engineers is benefiting from one of the longest bull runs on Wall Street in modern history.
No longer are top executives or investors with big wallets the only people trying to take advantage of the market. The prolonged boom has drawn the attention of more average investors - sometimes with dramatic results. An investment consultant at Smith Barney in Columbus, Ohio, tells of a 20-something client who made $120,000 in the stock market last year. For the majority of investors, the reward has been watching their nest eggs and children's college funds grow.
While some have lost money on the market, and the bull run won't last forever, most individuals have been content to see their money grow in stocks and equity mutual funds rather than in the bank. After all, the Standard & Poor's 500 stock index is up 21.56 percent since the start of the year.
"Enthusiasm is quite high" among average investors, says Cheryl Rowan, vice president of investment strategies at Merrill Lynch & Co. in New York. Although the investment house has been preaching a message of caution, "investors don't seem to be overly concerned," she says.
With a few dips or "corrections," the market has been charging ahead for six years. It was only a year ago that the Dow Jones industrial average crossed the 5000 mark. It roared past 6000 in October. Since then, it has continued to set records - including on Friday.
But more than stellar returns are bringing investors to the table. For one, baby boomers - who represent a significant portion of investors - are starting to think seriously about retirement. And widespread concern that Social Security won't pay full benefits for boomers when they retire has increased the pressure to save and invest.
"A lot of investors have been introduced to the market because they are forced to save for retirement," says Christopher Low, a senior economist at HSBC Markets in New York.
In addition, because interest rates are relatively low, savings accounts and certificates of deposit produce returns many regard as inadequate. Today, people's portfolios tend to be more heavily weighted in equities. "There's a sense that any money not in the stock market is money not doing well," Mr. Low says.
Currently, more than 1 in 3 households invests in stocks either directly or through intermediaries, such as mutual funds - a number that has risen steadily since 1983, according to a study by economists James Poterba at the Massachusetts Institute of Technology and Andrew Samwick at Dartmouth College in Hanover, N.H.
Although analysts point out that the euphoria surrounding the market is luring some to dabble in stocks directly, most Americans invest in stocks via mutual funds, often held in 401(k) or 403(b) retirement plans, and individual retirement accounts (IRAs).
And they've been pumping it in. For example, nearly $178 billion has flowed into equity mutual funds in the first three quarters of this year, already breaking the record set in 1993, according to Standard & Poor's.
"[The bull market] is probably forcing people to continue to put money into mutual funds on a regular basis," says Astrid Adolfson, an economist at MCM Moneywatch in New York.
Another gauge of the level of excitement about the market is the number of investment clubs cropping up across the country. In the past year alone, stock-market clubs - in which people invest together in one portfolio - have increased 58 percent to more than 25,000, notes the National Association of Investors Corp. (NAIC) in Madison Heights, Mich., the umbrella group for these clubs nationwide.