America's Consuming Love Affair With Stocks

Any anxieties Americans may have felt about the Crash of '87 didn't last long.

The period since then unleashed a record torrent of investor dollars in the market and excessive optimism about its performance and safety. Both trends prompt concern among some analysts.

Americans are particularly enthusiastic about sending their retirement savings to Wall Street. A new survey by publisher Conde Nast and the New York Stock Exchange finds that almost half, 48 percent, of investment dollars head for retirement accounts.

Many companies have shifted retirement funding from pensions to employee-managed 401(k)-type plans. Over the past decade, 401(k) money in mutual funds swelled 1,300 percent to $261 billion, according to the Investment Company Institute (ICI), a mutual-fund trade group in Washington.

At the same time, savings at commercial banks and savings institutions in the US rose just 19 percent, from $3 trillion to $3.6 trillion, according to the Federal Reserve.

That Conde Naste study also shows strong confidence in the market, despite reminders of Black Monday. About 60 percent in the survey said they did not expect big declines this year or next.

Another study by Montgomery Asset Management in San Francisco shows that Americans expect a 34 percent annual return on stock funds for the next 10 years. Analysts consider that a troubling fantasy, since stock-fund returns for the past 10 years averaged about 11 percent.

Such optimism recalls not so much the swift plunge of Oct. 19, 1987, but the slow meltdown in equity prices that began in October 1929, market experts say.

Few, if any, predict another pre-Depression collapse. But "the euphoria has gone too far, both among investors and money managers," says Hans Stoll, director of the Financial Markets Research Center at Vanderbilt University in Nashville, Tenn.

Investors embrace a common wisdom that stocks are the best long-term investment, says Robert Shiller, a Yale University economist and director of surveys dating to 1987. "People think if there's a crash, the market will rebound quickly like it did in 1987," says Shiller. "But that idea is not necessarily right - the market has been down in Japan for eight years," he says.

The overwhelming question: Will investors abandon the buy-and-hold strategy if the market again jolts downward?

"We don't know what they will do, but there's a possibility for severe disappointment and a panic, because expectations are so high," says Brad Perry, a consultant for David L. Babson, an investment firm in Cambridge, Mass.

One thing's for sure: The stock market has lured record numbers of US investors - between 75 million and 80 million people, according to David Hale at Zurich Kemper Investments Inc. in Chicago.

Total stock mutual-fund assets have exploded from $242 billion in September 1987 to $2.2 trillion in August 1997, according to the ICI.

Stocks now exceed 30 percent of household net worth, compared with roughly 14 percent last decade. This is the highest portion in 30 years, Mr. Hale says. "The American public has a greater intimacy with Wall Street than we have ever seen."

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