So why do investors continue to favor bonds?
Dan Alpert, managing partner of the investment bank Westwood Capital LLC, based in New York, says slow economic growth and even slower inflation make bonds attractive investments. When inflation is high, it erodes the purchasing power of bonds' fixed payments over time. When inflation is low, the opposite happens: the future payouts become more valuable.
The "real" yields on bonds — the amount they pay above inflation — are increasing, Alpert says.
Of course, there's no guarantee that stocks will go up. Despite her belief that investors are undervaluing stocks, Patel acknowledges that many still feel bitten by market crashes in 2001 and 2008, and by the herky-jerky trading of the past three summers.
Then there are the technological snags that have disrupted normal trading with increasing frequency. On Wednesday, a software glitch at the brokerage Knight Capital caused dozens of stocks to swing wildly as the market was flooded with erroneous orders.
Other recent market failures include the aborted initial public offering of BATS Global Markets in March, Facebook's chaotic first day of public trading in May, and the May 2010 "flash crash" that sent the Dow Jones industrial average down nearly 600 points in five minutes.
Even when markets are working properly, there are ample reasons for investors to worry about owning stocks. European policy makers have been unable to find a way out of their years-old debt crisis. Stocks fell sharply on Thursday after the head of the European Central Bank failed to announce new measures to bolster investors' confidence. If Europe experiences a major financial collapse and recession — still a real possibility — stocks could dive yet again.
Rob Leiphart, an analyst with Birinyi, says that adds up to fear among regular investors — enough to keep them away for some time.
"We've had the euro zone issues resurface three summers in a row, huge swings in volatility three years in a row, and people haven't recovered from the 2001 market yet," he said. "We just had a really bad decade."
But that's no reason to abandon stocks or bonds entirely, analysts said. Reid, of the Investment Company Institute, urged investors to "shy away from people who push them into dumping" one type of investment or another.
"Investors that follow an extreme investing strategy . . . are simply ignoring the risks of what they're investing in," Reid said.___
Daniel Wagner can be reached at www.twitter.com/wagnerreports.
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