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Where Investors Put Their Money in 2019

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This infographic is available as a poster.

Fund Flows 2019

This infographic is available as a poster.

Where Investors Put Their Money in 2019

While a strong 2019 closed off an entire decade free of recessions, celebrations have been short. The COVID-19 pandemic, which has tapped the brakes on the global economy, has led the International Monetary Fund (IMF) to declare a global recession.

So what were investors doing before the outbreak? To figure that out, today’s infographic from New York Life Investments visualizes where investors allocated their money in 2019.

Broad Comparisons

Virtually every asset class ended 2019 in the green, with U.S. equities among the highest gainers. In spite of this, investors appeared to be quite risk-averse. Even as the S&P 500 climbed 29% over the year, money was pulled away from equities and placed in safer assets such as money market securities and precious metals.

Let’s examine the data in more detail. In the tables below, net flows represents the difference between total inflows and total outflows.

Mutual Funds VS ETFs

Investors continued to invest in ETFs, but the interesting news is surrounding mutual fund activity. In a dramatic reversal from last year’s net outflows of $91B, mutual funds attracted $574B throughout 2019.

Type of Vehicle2018 Net Flows2018 Total Assets2019 Net Flows2019 Total Assets*
ETFs+$238B$3,385B+$281B$4,408B
Mutual Funds-$91B$16,345B+$574B$19,727B

*2019 total assets also include asset appreciation as a result of market movements.

ETFs once again grew their share of total invested assets, from 17.2% in 2018, to 18.3% in 2019.

Flows by Asset Class Group

To get more specific, investment vehicles are classified based on the type of assets they hold.

For example, a fund that holds a variety of American company stocks would be broadly classified as “U.S. Equity,” while a fund that targets specific industries would be classified as “Sector Equity.” Here are the flows each asset class experienced throughout 2019, starting with the largest net inflows:

Asset Class Group2019 Net Flows 2019 Total Assets 
Money Market+$522B$3,483B
Taxable Bonds+$413B$4,433B
Municipal Bonds+$106B$952B
International Equity+$11B$3,416B
Commodities+$8B$110B
Alternatives-$7B$212B
Sector Equity-$33B$995B
Asset Allocation-$38B$1,343B
U.S. Equity-$72B$9,162B

Investors pulled money from asset allocation funds, as well as alternatives, sector equity, and U.S. equity vehicles. Trade tensions between the U.S. and China, which have had a material impact on both countries’ economies, may have been a reason for this conservatism. Other likely factors include the Hong Kong protests and the culmination of Brexit.

In the face of these worrying developments, fixed income vehicles were in high demand, even as the Fed cut rates on three separate occasions. Money market funds had a massive year, and were responsible for much of the investor capital diverted to mutual funds in 2019.

In fact, with a Q3 net inflow of $224B, money market funds saw their strongest quarterly inflows since the global financial crisis.

Deeper Dive: Commodities

One of the most compelling flow trends of 2019 lies in commodities, which we can break down into five subcategories:

Commodities Subcategory2019 Net Flows 
Precious Metals+$11.4B
Industrial Metals-$0.1B
Energy-$0.2B
Broad Basket-$0.8B
Agriculture-$2.2B

Precious metals, which include safe-haven assets like gold and silver, were the only subcategory to see positive net flows in 2019. Likely driven by the fear of inflation, investors flocked to precious metals from June to October.

Gold and silver are often referred to as “safe-haven” assets because they outperform during periods of uncertainty.

The Motley Fool

It’s interesting to note that investors pulled money out of precious metals in November and December—perhaps a sign of growing confidence in the economy.

2020 and Beyond

Due to the ongoing COVID-19 pandemic, volatility has returned to global markets.

While the conservative asset allocation decisions made in 2019 may have given investors some shelter from this turmoil, it’s likely they paid a penalty for missing out on a robust year for equity markets.

In uncertain times like these, it’s important for every long-term investor to keep a cool head. After all, history has shown us that markets will eventually recover.

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Infographics

How Experts Think About Bear Market Opportunities

We look at quotes from investing legends like Warren Buffett and Peter Bernstein to take cues on how investors should approach a down market.

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How Experts Think About Bear Market Opportunities

Today, the majority of Americans are worried a bear market is looming.

The good news: there are silver linings. Bear markets can present bargains for investors, thanks to inefficient pricing and fear in the market. Going further, many investing greats have made key investments during market downturns including:

  • Warren Buffett: Automotive sector during the 2008 Global Financial Crisis
  • Shelby Davis: Financial sector during the 1997 Asian Financial Crisis
  • Peter Bernstein: Gold during the 2000 Dot-Com Crash

In this infographic from New York Life Investments, we show four quotes on bear market opportunities and the data behind their insight.

How Experts Think About Bear Market Opportunities

When faced with the challenges of a bear market, how do experts respond?

1. “Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.”

— Warren Buffett, CEO of Berkshire Hathaway

Just like a bargain on socks may be an opportunity for buyers, a bargain on stocks is an opportunity for potential upside. In fact, the S&P 500 Index has seen double-digit gains 85% of the time after extremely pessimistic sentiment since 1987.

Investor pessimism can be measured by a ‘bull-bear spread’. This is based on an AAII survey that measures investor expectations for the market in the next six months. It is calculated by taking the percentage of investors who are ‘bullish’ on the market minus those who are ‘bearish’.

For example, in the week of April 29, 2022:

  • Bullish: 16.4%
  • Bearish: 59.4%
  • Bull-Bear Spread: – 43

Here’s how the S&P 500 Index performed after periods of extreme investor pessimism:

DateBull-Bear SpreadS&P 500 Index
12-Month Return
10/19/1990-5426%
3/6/2009-5167%
10/5/1990-4422%
9/21/1990-4325%
11/16/1990-4321%
4/29/2022-43?
8/17/1990-4118%
1/11/2008-39-36%
3/14/2008-39-41%
8/31/1990-3823%
2/21/2003-3735%
10/16/1992-3614%
7/9/2010-3625%
9/14/1990-3521%
10/26/1990-3526%
2/20/2009-3544%
4/12/2013-3514%
12/21/1990-3417%
7/21/2006-3424%
1/25/2008-34-38%

Source: Bloomberg, 5/12/22

As the above chart shows, investor pessimism is at its highest in 20 years.

Instead of thinking of how bad the market is doing, investors may be better of thinking of the market as being significantly less expensive.

2. “History provides crucial insight regarding market crises: they are inevitable, painful, and ultimately surmountable.”

Shelby Davis, founder of Shelby Cullom Davis & Company

Bear markets hurt. On the bright side, they only account for 29% of the market environment, with bull markets making up the lion’s share (71%). What’s more, stocks have spent the vast majority of time at or near their all-time highs.

Market EnvironmentDescription% of Time in Market Environment
All-Time HighStock market hits all-time high35%
Bull Market DipStock market falls under 10% from all-time high33%
Bull Market CorrectionStock market falls over 10% but less than 20% from all-time high3%
Bear Market DrawdownStock market falls over 20% from peak to trough10%
Bear Market RecoveryTime it takes to reach next all-time high19%

Source: Morningstar Direct, PerformanceAnalytics, UBS 4/30/2022. Based on monthly returns from 1945.

Overall, stocks have spent around two-thirds of the time at or near all-time highs.

3. “The most important lesson an investor can learn is to be dispassionate when confronted by unexpected and unfavorable outcomes.”

— Peter Bernstein, economist and financial historian

To avoid falling for the behavioral pitfalls of a market cycle, investors can identify key macro indicators of each stage. Below, we show the economic indicators and how they associate with each type of market cycle.

Market CycleMonetary Policy Shock*Consumer SentimentEmploymentSalesPurchasing Managers Index (PMI)
BullPositivePositivePositiveHighly PositiveHighly
Positive
CorrectionPositiveNegativePositiveNegativeNegative
BearPositiveHighly
Negative
Highly NegativeHighly NegativeHighly
Negative
ReboundHighly
Negative
PositiveNegativeNegativeNegative

Source: Goulding, L. et al., May 2022. *Represents an unexpected move in monetary policy.

As the above table shows, bear markets are associated with low consumer sentiment, high unemployment, low corporate sales, and weak manufacturing performance—with a high number of macroeconomic shocks.

4. “A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty.”

— Winston Churchill, former Prime Minister of Britain

Just like bear markets can stoke investor uncertainty, rising interest rates can cause stock market disruption. However, since 1954 the S&P 500 Index has returned an average 9.4% annually during Fed rate hike cycles.

Fed Rate Hike CycleS&P 500 Index Annualized Total Return
Aug 1954 - Oct 195714%
Jun 1958 - Nov 195924%
Aug 1961 - Nov 19667%
Aug 1967 - Aug 19694%
Mar 1972 - Jul 1974-9%
Feb 1977 - Jun 198111%
Mar 1983 - Aug 198413%
Jan 1987 - May 198916%
Feb 1994 - Feb 19954%
Jun 1999 - May 200010%
Jun 2004 - Jun 20068%
Dec 2015 - Dec 20188%

Source: Morningstar, Haver Analytics, March 2022

Not only that, the S&P 500 Index has had positive returns 11 out of 12 times during periods of rising interest rates. Despite the short-term impact to the market, stocks often weather the storm.

Finding Bright Spots

In summary, it is helpful to remember the following historical characteristics of a bear market:

  • Extreme pessimism
  • Short-lived
  • Higher macroeconomic shocks (employment, sales, PMI)

Investors can find opportunities by considering a contrarian point of view and learning from the time-tested experience of investing legends.

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Infographics

Retirement Savings: How to Calculate If You’re on Track

This graphic shows how to plan for sufficient retirement savings, and how the U.S. population measures up at each step.

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Retirement savings by age group, to help people gauge their own retirement planning. Retirement balances get bigger until age 65-74 and go down for those over age 75.

This infographic is available as a poster.

Retirement Savings: How to Calculate If You’re on Track

Setting a retirement savings goal can be overwhelming. In fact, one in three Americans have no idea what they need to save to retire at their target age.

Luckily, we can use a retirement calculator to help outline what you need to consider. This graphic from New York Life Investments walks you through setting your retirement savings goal, and shows how the U.S. population measures up at each step.

Step 1: Your Age

A calculator will typically start by asking for your current age and your target retirement age. This is to determine how long you have left to build up your investments. In the U.S., the average age of retirement has remained relatively stable and is currently 62.

Keep in mind that your retirement age can depend on many factors:

  • Your cost of living
  • Your job satisfaction
  • Your debts
  • Your spouse’s retirement plan
  • Your health

After you have your projected retirement age figured out, you’ll also need to estimate the length of your retirement.

The life expectancy for Americans at birth is 77 years. Once you’ve lived to age 65, that number is higher. This is because you’ve survived many untimely causes of death, including the higher mortality associated with childhood. The below table shows how the expected age of death changes as you age.

 At BirthAt Age 65
Male7482
Female8085
Both Sexes7784

To estimate your particular lifespan, you’ll also need to consider things like your genetics and your lifestyle. Having an idea of how long you might live may help you better manage longevity risk, or the risk you’ll outlive your savings.

Step 2: Your Savings

The next step in setting your retirement savings goal is to take stock of how much you’ve already saved. For context, here is how much Americans have saved for retirement by age group.

 Median BalanceAverage Balance
< 35$13,000$30,170
35-44$60,000$131,950
45-54$100,000$254,720
55-64$134,000$408,420
65-74$164,000$426,070
> 75$83,000$357,920

You’ll also need to decide how much you’ll be putting toward your retirement each year. Experts typically recommend saving about 15% of your pre-tax income. This can include your employer’s contributions, if any. Of course, this amount will vary based on how early you start saving and when you plan to retire.

Your expected investment earnings will play a big role, too. Here is what average annual returns have been for different types of portfolios based on historical data from 1928-2021.

 Conservative
(80% bonds, 20% stocks)
Balanced
(40% bonds, 60% stocks)
Growth
(20% bonds, 80% stocks)
Nominal Return8%10%11%
Real Return5%7%8%

Inflation has averaged about 3% each year. Remember to include inflation in your calculations so you can maintain purchasing power in retirement.

Step 3: Your Income

In the final step of setting your retirement savings goal, you’ll need to decide how much of your current household income you will use in retirement. Financial experts typically estimate you could need 70-80% of your pre-retirement income.

At this stage, it can be helpful to plan out a detailed budget. Here’s a spending overview for the average American over age 65.

CategoryAnnual Spending
Housing$17,435
Healthcare$6,668
Transportation$6,221
Food$5,698
Donations, Child and Spousal Support$3,119
Personal Insurance and Pensions$2,721
Entertainment$2,293
Clothing$821
Alcohol and Tobacco$635
Other$2,033

Other includes personal care products and services ($505), education ($450), reading ($157), and miscellaneous expenses ($921).

Now that you have an estimate of your expenses, you can factor in all sources of income you expect to receive in retirement. This helps narrow down what you need to have set aside in your retirement savings. For instance, most people collect Social Security in addition to their own pension. The below table shows what percentage of retirees have each income source.

SourceRetirees Age 65 and OlderAll Retirees
Social Security92%78%
Defined Contribution or Defined Benefit Pension66%57%
Interest, Dividends, or Rental Income49%43%
Wages, Salaries, or Self-employment25%32%
Cash Transfers Other Than Social Security7%11%

Respondents could select multiple answers. Sources include the income of a spouse or partner.

Based on all this information, a retirement calculator will estimate whether you are on track to sufficiently fund your retirement years.

Turning a Retirement Savings Strategy Into Action

It’s important to note that retirement calculators are a starting point. To come up with a customized strategy, you’ll likely want to consider:

  • Your current and expected tax rate
  • Increases in your income and savings rate
  • A contingency plan for unexpected events

However, retirement calculators can make the concept of retirement savings more concrete—and help you take action toward your goals.

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