NEW YORK -- January was more than a disappointment for investors hoping for a turnaround on Wall Street. It turned out to be a measure of just how despondent investors are.
Mutual fund tracker Lipper Inc. reported that shareholders withdrew a net $1 billion from stock funds in January and poured $13 billion, a seasonal record, into bond funds.
Stock fund outflows in January are unusual - in fact, this was the first instance of outflows during the month since 1990 - because typically it's a month when investors, having finished selling for tax purposes at the end of the year, resume buying equities in earnest.
By contrast, in January 2002, stock funds posted a net inflow of $21 billion and in January 2001, they recorded a net inflow of $27 billion despite the bear market and investors having smaller year-end salary bonuses to devote to equities.
Burned by three straight years of declines, investors will keep shunning stocks and stock mutual funds and favoring safer opportunities like bond funds until it's clear whether there will be a war with Iraq, analysts said. Investors are anxious about what a war might do to the already sluggish economy and whether it would lead to more terrorist acts in the United States.
"People have the attitude of 'Why be in a rush?"' to buy stocks, said Don Cassidy, senior research analyst at Lipper. "There is so much uncertainty in the world. Why be a hero?"
He added: "It is going to take people time to repair their confidence. We probably have to get the war over with and not have any terrible domestic consequences and have the market find some legs, have some period of months when it doesn't go down again. ... People are still scared."
For the past three years, investors have turned to bond funds, preferring their modest but generally reliable returns to the volatility of the stock market. Bonds are considered safer because they are essentially IOUs from companies, governments or municipalities.
Investors purchase bonds or bond funds with the idea they will recoup their investment along with interest by the specified maturity date.
Last month, investors poured $13 billion into bond funds, making for a record January for bond fund inflows and one of the strongest months in two years, according to Lipper.
Meanwhile, more evidence of investors' sour mood about stocks came in Lipper data showing a $200 million net outflow among stock funds based on the Standard & Poor's 500 index, long a popular choice among 401(k) investors, who for the most part are less prone to making big changes to their portfolios.
Having returned earlier this month from the Florida Money Show, an annual trade fair in Orlando, analyst Thomas F. Lydon Jr. said there was little or no interest in stocks or stock funds on the part of individual retail investors.
"The attitude among investors was very glum," said Lydon, president of Global Trends in Newport Beach, Calif. That was particularly true of investors in retirement or those who have postponed it.
"It's been very, very emotional for people," Lydon said. "They are three years older. A lot are retired."
Investors are desperate, he said, for positive returns, no matter how modest, whether it's a CD that pays 2.5 percent interest or a money market account paying 1 percent.
While the short-term outlook for the stock market appears dismal, financial planners encourage investors to stick to their particular strategies. And they maintain that every investor should have some money in stocks.
"We have always tried to educate investors about the volatility of any particular portfolio plan," said Marilyn R. Bergen, a financial planner in Portland, Ore.
These days, Bergen said she finds herself reminding some clients that the stellar returns of the late '90s and the dreadful losses of this bear market aren't what's normal for Wall Street, which over the long-term has enjoyed annual growth of about 10 percent.
"The most skittish (investors) are the ones who were the most aggressive in the '90s. It's kind of ... a greed and fear syndrome," she said.
Planners also continue to advocate a practice called dollar-cost averaging, in which investors invest a fixed amount of money every month or from every pay check into Individual Retirement Accounts and 401(k) accounts. The idea is that over time the market's gains more than compensate for its declines, yielding a respectable return of 10 percent to 12 percent.
And, it's a way for investors to safeguard against buying stocks high and selling them at their lows.