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Traders work on the floor of the New York Stock Exchange. (BRENDAN McDERMID/REUTERS)
Traders work on the floor of the New York Stock Exchange. (BRENDAN McDERMID/REUTERS)

The end of fear: Why that hoard of cash is streaming into stocks Add to ...

The six-figure inheritance Peter Duchenes received three years ago is about to hit the stock market.

When he first got the money, the 51-year-old actor and director decided to park it in a bank savings account. The interest on it was paltry, but he had no appetite for stocks – put off by the losses he sustained in an account he had with an investment adviser and worried about the upheaval in financial markets.

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But this week, the Ottawa resident opened a new discount brokerage account. Once the paperwork is done, he will join the many investors who are finally getting over the trauma of the great crash of 2008-09 and diving back into equities. After three years of educating himself about the markets, he’s planning to invest the money in exchange-traded funds, which are index-tracking investments that trade like a stock.

Memories, even awful ones, do fade. That’s proving true for the legions of investors who were psychologically scarred by the meltdown that happened more than four years ago and carved billions of dollars off Canadians’ collective net worth. “Part of it is the distance from the big collapse,” Mr. Duchenes said of his plan to go back into the market. And suddenly, there are a lot more people thinking the same thing.

They are investors who are having pangs of regret about missing the four-year bull market that followed the crash, and who are tired of watching their money grow at 1 or 2 per cent in a savings account, or government bonds that pay little more than that. If they’re worried about anything at the moment, it’s that they’ll squander an opportunity to profit from an upturn in the global economy. “Everybody’s still scared,” said Peter Puccetti, founder and chief investment officer of Goodwood Inc., a Toronto fund management company, but “it’s another form of fear – fear of missing the rally. People see the market rally and want some of that.”

The Dow Jones industrial average closed above 14,000 on Friday for the first time since October, 2007, and is closing in on its all-time high 14,164. The Standard & Poor’s 500, the best single measure of the health of the U.S. stock market, went up 5.2 per cent in January, its best performance for that month since 1987; it, too, is near a record high. The S&P/TSX composite, Canada’s benchmark index, has now recovered all the ground it lost since Lehman Brothers Holdings Inc. collapsed on the morning of Sept. 15, 2008.

Individual investors are responding. Tellingly, in the four weeks ended Wednesday, U.S. investors poured $20.7-billion (U.S.) into equity mutual funds – the highest four-week total since April, 2000, according to Thomson Reuters/Lipper.

A survey of sentiment by the American Association of Individual Investors this month hit its most bullish level in more than a year. Investment advisers and other financial professionals also report a change in mood among Canadian investors. “The rally is real. Money is in motion. Retail investors are coming back in,” said Noel Archard, who runs the Canadian unit of BlackRock Inc., one of the world’s largest asset managers.

All of this is a reversal of what has been a lengthy abandonment of equities by the retail investor. Scarred by scandals, beaten down by two historic bear markets since the turn of the century, investors have been pulling money from stocks and shifting to bonds and cash for years, even in the United States, which has one of the strongest equity cultures in the world.

In a Gallup poll last year, 53 per cent of Americans said they owned stocks, the lowest percentage since the polling company began asking the question in 1998. The Investment Company Institute, a lobby group for the U.S. mutual fund industry, says that 2007 was the last most recent year U.S. investors put more money in to stock funds than they took out.

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