Small Investors Reap Rewards Dow’s Sharp Rise Puts Money In Pockets Of Investors Who Stood Firm

The nation’s most powerful banker had just hinted the stock market was overvalued and billions of dollars appeared to be agreeing with him, sending the Dow down as much as 145 points.

Joe Chavez, a father of five who works for Los Angeles County, was buying. He saw the Dow Jones industrial average’s slide below 6,300 as an opportunity.

Today, his only regret is he didn’t have more than $2,500 to invest after Federal Reserve Chairman Alan Greenspan’s December warning of “irrational exuberance” sent the market plunging.

“Some said the Dow couldn’t hit 6,000, some said 7,000. Now we’re at 8,000. Maybe by the end of the year we’ll be at 10,000,” Chavez said.

Many feared that small investors would flee the market at the first sign of trouble. But with the Dow average chugging to a record high of 8,038.88 points Wednesday, those who stood pat through interest-rate increases, Greenspan’s warnings and a 10 percent downturn feel vindicated.

As with so many other drops in recent years, Chavez and other investors raced in to grab what they saw as bargains.

For many trying to secure retirement, their children’s education or parents’ care, they don’t want to miss out on a market that seems determined to keep going higher.

“Let’s put it this way. If you have extra money, you might as well put it to work,” said Phil Ebel, a consulting geologist visiting his parents in Yuma, Ariz. “If you just keep your money around the house, it’s not doing much good.”

Investors are still plowing more money into mutual funds, the most popular way to invest in the stock market. Even during the market downturns in March and last July, money continued flowing into funds, but at a much lower rate.

In May and June, the Investment Company Institute, a mutual fund trade group in Washington, estimates more than $18 billion was invested. The money flowing into mutual funds is on pace for its fourth $200 billion year since 1992.

“Out of sight, out of mind,” said Tony DeBeradinis of Cambridge, Mass., after looking in on his stocks at a Charles Schwab discount brokerage branch office in Boston. “You don’t really pay attention to the ups and downs. You just keep investing regularly over time.”

DeBeradinis, 34, said he keeps 70 percent of his savings in stocks and the rest in money market accounts. Even his individual stock accounts are set up so that he automatically reinvests dividends.

But he doesn’t expect to use any of that money for at least five years. And he does expect the market to take at least a few good hits before then.

The market has been running without a sustained downturn since 1990, when the Iraqi invasion of Kuwait and worries about the economy sent stocks lower.

Now with the index above 8,000, many are worried that some surprise, like the Iraqi invasion, could pop up and send prices lower.

“The higher it goes, the more terrified I get,” said Don McCready, a retired Proctor & Gamble employee has an account at Fidelity Investments in Boston. “But I’m terrified to be out.”