While ordinary equity investors may be shocked by big losses, they don’t have existence manifest to have existence panicking. Still, they’re not stepping back into the market

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By Ben Steverman

The drama of the current financial crisis has featured star turns by Wall Street titans and Washington ruler players. But what hither and thither the little guy?

The worst stock market in a lifetime has left the medium investor stunned. After the past year has taken a pierce with the teeth of 40% or more out of their portfolios, investors are be riven on whether to run away from equities, buy greater amount of, or stay the way.

Many institutions and wealthy investors are being forced to pull out of the market. Hedge funds, for example, are selling away stocks because credit troubles ascertain by dint of. enumeration it harder to invest using borrowed money, and customers are demanding their money back. Investors withdrew an estimated $40 billion from fence funds in October, according to Hedge Fund Research.

Ignoring Buffett’s Advice

But at least in theory, individual investors should be better able to withstand a downturn. Billionaire investor Warren Buffett is buying stocks and urging others to do the same, citing dirt-cheap valuations onward many of the best U.S. companies.

There’s only anecdotal evidence that independent investors are actually following this advice. Financial advisers interviewed by BusinessWeek.com reply a inferior percentage of their clients—often those who are junior and further from retirement—are shifting more of their portfolio toward stocks.

Others, clearly, are yanking their money disclosed, or shifting their portfolios toward safer investments such as cash or bonds. According to TrimTabs Investment Research, almost $165 billion has been pulled at a loss of equity mutual funds since early September.

Few investors are taking the drastic step of pulling all money wanting of investment plans. Hewitt Associates (HEW), a firm that runs 401(k) retirement plans for 2.7 million U.S. workers, says only 4% of employees have stopped contributing to 401(k) plans entirely this year.

Reallocating 401(k) Assets

But since stock markets plunge, fewer full of character investors are buying stocks. According to Hewitt Associates, 53.8% of 401(k) possessions are held in equities, down from 68.1% a year agone and the lowest since the firm started tracking the data in 1997. A survey by the American Association of Individual Investors shows individuals allocating only encircling 45% of holdings to stocks, downward from a historical average of 60%.

Falling markets have prompted many to stir over their plans: A total of 1.25% of 401(k) balances were moved around in October alone, nearly three times the historical average. Often these adjustments come at the worst potential time during a volatile market: Investors will sell the day after the place of traffic falls and then buy afterwards the market rises—essentially committing the classic investor error of selling low and buying high, says Pamela Hess, Hewitt Associates’ director of retirement research.

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