"There's a disconnect," says Kenneth Polcari, director of floor operations for O'Neil Securities at the New York Stock Exchange and a CNBC contributor. "I walk around the town I live in and I still see storefronts that are empty. I still see people out of work.... When you talk to your next-door neighbor, he's frustrated because he can't understand why the market is doing so well."
Plenty of cautious investors share that frustration. In the wake of the financial crisis, many people stopped putting more money into stocks. A sizable minority – 22 percent, according to a recent Monitor/TIPP poll – pulled all or most of their money out. Of those who left the market, 66 percent said they were waiting to put their money back in and another 21 percent were not sure what they would do, according to the poll of 915 adults conducted March 25-30. Only 10 percent had reinvested in stocks.
But as Wall Street has set new highs, a rising number of investors are coming off the sidelines to put money back into equities. In the first quarter of this year, US equity mutual funds and exchange-traded funds saw a positive net influx of $52 billion, according to TrimTabs Investment Research, an independent research service based in Sausalito, Calif. That's the biggest quarterly inflow since the first quarter of 2004 and only the third positive quarter in the past four years.
But this time, individual investors are moving into stocks with more discipline. Of those in the TIPP poll who called themselves investors, typically those with more than $10,000 in individual stocks or mutual funds, 67 percent said they had "become less aggressive, emphasizing more conservative, higher-yielding stocks" and 58 percent were buying fewer individual stocks and relying more on mutual funds.