Stocktake: Dumb money does the smart thing in Covid crash

Of those who did trade, the vast majority opted to buy rather than sell stocks

Fewer than 1 per cent panicked and sold all of their stocks. Photograph: iStock

Fewer than 1 per cent panicked and sold all of their stocks. Photograph: iStock

Your Web Browser may be out of date. If you are using Internet Explorer 9, 10 or 11 our Audio player will not work properly.
For a better experience use Google Chrome, Firefox or Microsoft Edge.

 

Huge first-quarter losses followed by huge second-quarter gains means the S&P 500 fell only 2.7 per cent in the first half of the year. That small loss “feels miraculous” given everything that’s happened in 2020, says Ritholtz Wealth Management’s Ben Carlson.

So did ordinary investors enjoy this “miraculous” recovery or were they spooked into selling during the crash? The stereotype of retail investors being a skittish bunch was reinforced by a recent Wall Street Journal story reporting that 31 per cent of Fidelity investors between the ages of 65 and 69 sold all of their stocks between February and May.

Understandably, that got a lot of press coverage, but it turned out there had been a mix-up. In fact, just 7.4 per cent of those investors made any changes to their portfolio.

Of that small minority, 31 per cent reduced their stock holdings. If you do the maths, this implies only 2.3 per cent of Fidelity’s retirees opted to reduce their exposure to equities. This picture of investor calm is confirmed by Vanguard data. It shows 95 per cent of investors didn’t touch their retirement portfolios in the first four months of 2020, while fewer than 1 per cent panicked and sold all of their stocks. Vanguard investors were similarly calm in their non-retirement accounts; of those who did trade, the vast majority opted to buy rather than sell stocks. In other words, the so-called dumb money did the smart thing – nothing.

Business Today

Get the latest business news and commentarySIGN UP HERE
The Irish Times Logo
Commenting on The Irish Times has changed. To comment you must now be an Irish Times subscriber.
SUBSCRIBE
GO BACK
Error Image
The account details entered are not currently associated with an Irish Times subscription. Please subscribe to sign in to comment.
Comment Sign In

Forgot password?
The Irish Times Logo
Thank you
You should receive instructions for resetting your password. When you have reset your password, you can Sign In.
The Irish Times Logo
Please choose a screen name. This name will appear beside any comments you post. Your screen name should follow the standards set out in our community standards.
Screen Name Selection

Hello

Please choose a screen name. This name will appear beside any comments you post. Your screen name should follow the standards set out in our community standards.

The Irish Times Logo
Commenting on The Irish Times has changed. To comment you must now be an Irish Times subscriber.
SUBSCRIBE
Forgot Password
Please enter your email address so we can send you a link to reset your password.

Sign In

Your Comments
We reserve the right to remove any content at any time from this Community, including without limitation if it violates the Community Standards. We ask that you report content that you in good faith believe violates the above rules by clicking the Flag link next to the offending comment or by filling out this form. New comments are only accepted for 3 days from the date of publication.