The stock and bond markets continue to show that they can be very scary places to put your money, at least in the short run. Even so, the line of people leaving the banks and S&Ls for stocks and bonds appears to be getting longer every day.
Fed up with slim 5% to 6% returns on super-safe CDs and savings accounts, people who always thought of themselves as "savers" rather than "investors" are changing their minds. Many savers whose CDs mature this month--October traditionally has been a big month for CD rollovers--are cashing out and going in search of better returns.
That's what brokerages and mutual funds hoped would happen. And just to make sure, they have unleashed a torrent of advertising aimed at luring savers away from their usual haunts. Talk about opportunity: There is nearly $1.1 trillion sitting in small savers' CDs, and another $1 trillion stuffed in passbook savings accounts and bank money market deposit accounts.
In contrast, the assets of stock mutual funds total just $323 billion. Even bond mutual funds, which have been wildly popular this year, hold just $391 billion in assets.
Nobody believes that the majority of the dollars left in CDs and savings accounts are going to shift to stocks and bonds, or that they \o7 should\f7 . But brokers and mutual funds say they are thrilled with what they're seeing so far in October:
* Tom Anderson, a veteran broker with Crowell, Weedon & Co. in downtown Los Angeles, says he's handling a steady stream of potential new customers who want to exit their CDs. "A lot of them have been in the banks forever," he says. They often come to him as referrals from longtime clients.
Many of the new customers have little knowledge of stocks or bonds, Anderson says. "They say, 'I've never done this before.' " And because most of these people are conservative types who just want more interest income than CDs pay, Anderson is steering many of them into two- to three-year notes and bonds of major American companies such as Philip Morris and General Motors. If they can earn 7% to 8% on such paper, they're happy, he says.
* Merrill Lynch & Co.'s branch in the city of Orange is seeing double the usual number of "walk-in" customers in recent weeks, manager Brian Scudday says. Such unsolicited business is rare for a brokerage, for the obvious reason: Most people are too terrified to simply come in off the street and hand their money to someone they don't know.
But the hunt for higher returns apparently is turning many savers into brave souls. Scudday, like Anderson, believes that most former CD owners belong in higher-yielding but still conservative investments. One of his favorite choices now: A portfolio of utility stocks, including such names as SCEcorp. (parent of Southern California Edison) and Northern States Power.
Both of those stocks yield 6.1% annually from their dividends. And SCEcorp. has raised its dividend at least 3% a year over the last decade.
* At the Valley Forge, Pa.-based Vanguard Group, one of the nation's largest mutual fund companies, cash inflows into stock and bond funds are on pace to set a record, spokesman Brian Mattes says.
The company has taken in $819 million so far in October, well above the $616 million that had flowed in by mid-month in September. If the money keeps coming at the same pace for the rest of October, Vanguard will top its previous monthly record inflow of $1.4 billion in January, 1990. The most popular funds this month, Mattes says, continue to be the company's Short-Term Corporate Bond fund, and its GNMA fund.
* Some brokerages are going after CD owners with a pitch that has enormous appeal: Rather than force the uninformed client to choose individual investments, or leave it in the hands of a broker, some firms are offering accounts that place clients' funds with professional money managers.
Shearson Lehman Bros. this week rolled out a service called TRAK for clients with as little as $10,000. The service offers a personalized computer evaluation of a customer's financial goals and risk tolerance, and then suggests how the customer's portfolio should be allocated among various money managers who specialize in stocks, bonds or other areas. The client can OK those choices, or pick others. The basic fee: 1.5% a year ($150 for someone with $10,000), which includes quarterly monitoring of the portfolio by a Shearson consultant.
"This is for people who have no game plan," says Gary Roney, a Shearson consultant in Newport Beach. "They may be all in CDs, or own a hodgepodge of stocks, and aren't sure what to do with their money."
That probably describes a lot of CD owners these days. Many of them are making the right decision to look for higher returns elsewhere--as long as they understand the risks. Once you leave the safety of a federally insured CD, you're entering a new world where you \o7 can\f7 lose money. If you can take that risk in the hope of a better payoff, you're ready to diversify. If you can't take that risk, the banks are still the best place for you.
Where the Money Is
Here are asset totals for five types of savings and investment vehicles favored by small investors. Asset figures are in billions.
Small CDs: $1,097
Savings deposits: $1,004
Bond funds: $391
Money market funds: $337
Stock funds: $323
Savings deposits include bank money market accounts. Money market fund total excludes institutional money.
Source: Investment Company Institute, Federal Reserve Bank of St. Louis, IBC/Donoghue's