Investors like has put more money into the market in 2013 as any other given year. What to expect for 2014? In 2013, the bull market started to pause a little, prompting many people to call it “the beginning of the end.” While the market is still recovering since it’s hit in 2008/9, stocks have rallied over 170 percent. This rise is incredible, but may be starting to slow down. The change comes from the way money is being invested. Between 2009 and 2012, most of the stock market was driven by mutual funds or large institutional investors. This year, more individuals and “mom and pop” investors are putting their extra cash into the bond market.
The biggest changes can be seen in late 2012. The chart above shows a clear indication of when individual investors joined the stock market. You can plainly see the effects this had on the marketplace. You can also see the shift in fund flow movements. Between 2009 and early 2013, stock-based mutual fund became less attractive to individual investors, who began to pour their money into bonds until early 2013. Big changes occurred in early 2013 when investors started to pour their money back into the stocks again. A record $324 billion was invested in US stock mutual funds. That number easily tops the large amounts invested in 2000, which was the very peak of the tech bubble.
Today, bullish investors are putting in more money than any point in the past 20 years. Many even borrow money, or create margin debt, in order to make their purchases as quickly as possible. Stocks are being bought at the fastest pace in history! Many companies that have never turned a profit are suddenly valued at tens of billions of dollars, internet companies like Twitter being a prime example. The market is becoming overbought and overvalued. This isn’t a reason to start ignoring stocks. In fact, the stock market still has a lot of potential. Market manias tend to last longer than one might expect.
While the market isn’t coming to an end, it does mean the end of an era. The odds that stocks would increase massively again this year is very slim. In this market, stockholders still have plenty of options to help keep themselves profitable. One suggestion is to lighten up on ownership. Many people also suggest to look for undervalued companies that offer you good down side protection to help balance your portfolio. What would you buy for 2014?