The Standard & Poor’s 500 index has gained more than 9 percent so far this year, after finishing 2011 virtually unchanged. This year’s turnaround in stock fund flows suggests investor confidence may be rebounding. “Memories of extreme volatility are fading, albeit very slowly, as U.S. mutual fund investors are tiptoeing back into riskier assets,” said Avi Nachmany, research director with New York-based Strategic Insight.

To the extent that investors are returning to stocks, they’re doing so cautiously. For example, about three-quarters of the $3.6 billion in new cash that stock funds attracted in February went into funds specializing in dividend-paying stocks. Dividend stocks typically appreciate in price more slowly than growth-oriented stocks, but dividend stocks offer greater protection when markets decline. Dividend stocks are popular with risk-averse retirees, because they generate regular payouts whether they rise or fall in price.

Source: Washington Post

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