A lot of ink and pixels have been spilled this week over the ICI's report thatequity mutual funds suffered net withdrawals totaling over $33 billion in the first seven months of 2010. Myriad reasons were cited for the trend, including a mistrust of stocks, the flash crash and an aging population. (See: The Next Bubble? Investors Flee Stocks in Droves In Favor of Bonds.)
Perhaps the biggest reason of all hasn't gotten enough attention: Americans are making due with less and don't have the money to put into stock funds, and many are taking money out of their investments to pay for basic necessities like food, clothing and shelter.
With wages stagnant for those who still have a job "a lot of people are having to tap into their nest egg to keep their living standards going," says Damien Hoffman, co-founder of WallStCheatSheet. "A lot of people are living out of principal. There's no other way to get around that."
Fidelity's recent report of a sharp increase in the number of 401(k) participants seeking loans or hardship withdrawals in the second quarter is further evidence of the disappearing middle class. "These are basically emergency ways to fund yourself. We think it's a scary statistic," Hoffman says. "Where is the middle class going to be if they draw down their 401(k)s drastically over course of next few years?" LINK
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