Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: TUESDAY, November 21, 1995 TAG: 9511210073
SECTION: BUSINESS PAGE: B-6 EDITION: METRO
SOURCE: JOYCE M. ROSENBERG ASSOCIATED PRESS
DATELINE: NEW YORK LENGTH: Medium
Chances are you, your family, friends or neighbors are doing it, too.
Whether they are actively buying stocks or shares in mutual funds or are holding stock indirectly through pension or 401(k) plans, millions of Americans have helped push the stock market to record levels.
The most visible sign of the market's advance has been the surge in the Dow Jones average of 30 blue chip stocks, which crossed the 5,000 barrier for the first time Monday, rising to 5,003.68 before slipping back to close at 4,983.09, down 6.86 from Friday's close.
It took the Dow average only nine months to traverse its latest thousand-point span. The forces that pushed it past 4,000 in February are still at work today.
More and more people who have never owned stock are going into the market because they see it as the best vehicle for savings for their homes, families and retirement. Banks, once the place to put your money and watch it grow, just aren't delivering the kinds of returns Americans want and need.
``The decline of interest rates has been of critical importance to this year's nearly 30 percent jump in stock prices,'' said John Lonski, chief economist for Moody's Investors Service, who noted that bank and bond market interest rates are down 1.8 percentage points from a year ago.
The drop also ``has encouraged individuals to invest a larger portion of their savings in equities instead of bonds'' he said.
Individual investors are particularly drawn to mutual funds, which allow them to own a variety of stocks and to have someone else - a professional fund manager - keep track of their holdings.
Many investors are saying ``I don't want to do this myself,'' said Stan Weinstein, editor and publisher of The Professional Tape Reader, a newsletter that tracks the stock market's performance. ``There's a tremendous amount of money coming into the market.''
Changes in pensions also are steering more people to stocks. Many companies as part of their restructuring and reducing are retooling pension plans or eliminating them altogether in favor of 401(k) plans. These plans are increasingly investing in stocks and mutual funds.
Under a 401(k) plan, employees allocate a tax-free portion of their income to be invested, and usually choose how much of their money they want to put into stocks or other investments. Companies often match a portion of the employee's contribution.
The money going into 401(k) plans is heavily weighted toward stocks, with about 70 percent going into specific company shares or into mutual funds, said Jeff Close, a spokesman for Access Research, a Windsor, Conn.-based consulting firm. The average contribution per employee is $2,800 a year.
Assets of company-sponsored retirement plans - including traditional pensions and 401(k)s - that are invested in stocks have quintupled over the past 10 years to about $547 billion, according to data compiled by the Employee Benefit Research Institute, a non-partisan public interest group in Washington. During that time, the stock portion of total plan assets has gone from slightly more than a third to nearly half.
Individuals have a stake in the stock market in other ways. Government and union pensions are heavily invested in stocks, and insurance companies and banks often have holdings.
Pension plans and the like are known as institutional investors and are usually managed by professionals with financial backgrounds.
Individuals usually don't have the same experience or expertise as the pros, and some market analysts believe that is a big down side to all the single investors jumping into stocks.
With prices rising so high this year, many people may be in for a rude awakening when the next ``correction,'' or downturn occurs, Weinstein said.
``A lot of people shouldn't be in here and don't understand the risks, he said, predicting ``a lot of people are going to get hurt'' in the next stock market decline.
Many investors, having seen the stock market crash in 1987 and then rebound to reach new heights, believe the market - and their investments - will ultimately come back.
``That has set people up. .. They think it always comes back.'' Weinstein said. ``That's made a lot of people almost fearless, and they should be a little more fearful.''
by CNB