SAFETY PAID IN 2011

The a benchmark for the U.S. economy, ended the year virtually flat, and the was up more than 5 percent. But investors who followed the conventional wisdom of the crowded chorus of analysts were left with little to cheer about when ringing in 2012.

It didn’t pay to follow the standard wisdom offered by investment advisers in 2011.

Despite warnings from professionals, many individuals had minds of their own. As the early-year stock surge gave way to a 17 percent plunge and record volatility after May, many fled from stock funds and clung to bonds, savings accounts and gold.

By the end of 2011, they had earned a shocking 17 percent in 10-year U.S. Treasury bonds, an unusual gain given the historic average of just 5.5 percent a year in Treasurys and the warnings from professionals that U.S. government bonds were likely to turn into losers.

Investors also earned almost 10 percent in gold, and they avoided a 20 percent loss if they ignored the emerging-market funds that professionals had been lauding while the U.S. and Europe struggled with debt problems.

It turned out that financial troubles in Europe crimped demand for emerging markets’ basic materials. And as stressed European banks held off on loans to developing countries, the refuge that investment professionals had envisioned began to fade.

Although the Standard & Poor’s 500 ended 2011 up less than a half percent, funds that invest in Latin America declined 22 percent, and China funds fell 24 percent, according to Lipper.

People poured $710 billion into savings accounts, the fifth-highest amount in history, Biderman said.

“People have been burned so many times in equities in the last decade they weren’t going to take a chance,” said Biderman. “It’s going to take a long

S&P 500 index, Jones industrial average

time for huge inflows into equity funds again.”

In fact, investors have been scared since 2008. During the last three years, investors have poured a remarkable $900 billion into bond funds and yanked $242 billion from U.S. stock funds, said Biderman.

Despite stronger performance by the U.S. stock market than foreign markets, investors bet more on global funds than U.S. funds. They have put about $89 billion into global funds.

Investors have not regained the money they lost when the market started its 57 percent decline in October 2007. Investing in the Wilshire 5000, or the full stock market of large and small stocks, has left investors with a loss of about 17 percent, or about $4 trillion collectively.

Sticking with solid dividend-paying stocks in defensive sectors such as health care, utilities and consumer staples like soap and toothpaste did help in 2011, as investors worried about the global economy sliding back into a recession.

The Dow Jones industrial average of blue-chip stocks climbed about 5.5 percent for the year, and funds that invest in health care stocks and utilities averaged gains of more than

Dow

7.5 percent as investors sought security and income from dividends.

The Vanguard High Dividend Yield exchange-traded fund, which selects stocks paying high dividends, provided investors a 10.5 percent gain.