Investors are spooked by the increasing volatility of U.S equities markets and in July pulled out nearly $23 billion, an amount of money that is starting to approach the panicky pullback seen in the October 2008 when investors withdrew $27.9 billion from the market.

Kevin McDevitt, an analyst at Morningstar, which monitors these investment flows, told On Wall Street there is a significant difference this time around.

Surprisingly, it's that this time investors seem to be even more risk averse than they were back in October 2008 when Treasury Secretary Paulson warned that the economy could completely collapse.

During that earlier crisis, he said, investors moved a total of $131 billion from equities and bonds and placed most of that money into money market funds. This time around, probably because of concerns about a possible Aug. 2 default by the United States government because of the political deadlock in Congress over raising the debt ceiling, investors were pulling money out of their money funds, too -- a total of $150 billion during the months of June and July.

“I can’t say where they put all that money,” McDevitt said. “We don’t have that data. But I assume a lot of it went into banks and savings institutions...or maybe under mattresses.” 

McDevitt said he does not have any figures yet for August, but “given the market’s volatility, I can’t imagine that we’re not seeing continuing outflows from equities this month.”

The money fund situation may have changed though, at least for now, with the Aug. 3 resolution of the debt ceiling issue. 

“The question of a default by the U.S. government has been pushed ahead into the future,” said McDevitt, “so we may not be seeing outflows from money funds anymore.”  Indeed, money may at this point be flowing back into money funds, he speculated.

McDevitt also said that he couldn’t say if those same investors who pulled money out of equities were putting it into banks. They could, for example, have been putting their assets into money funds, while people invested in money funds could have been pulling their money out, though that scenario seems unlikely.

“I’d hope that people who move out of equities and into cash would be using some of that money to pay down some of their debt,” said McDevitt, “but I doubt that many are doing that.”

In general, McDevitt said the data suggests that investors are becoming “fundamentally more risk-averse.”  This trend, he says, is not a short-term thing. 

While investors returned to equities after the 2001-2002 market crash, over the past five years, for example, investors have withdrawn a net $190 billion from equities funds. And even when there have been brief periods of net inflows into funds, he said it's been a “weak and short-lived” phenomenon, quickly “erased” by a return to larger outflows.

One possible reason for today’s more conservative attitude on the part of investors, McDevitt suggests, is that at this point many investors who are in the Baby Boom generation are nearing retirement and are reallocating their portfolios away from stocks. This would mean that the shift of funds out of equities could be the beginning of a longer-term trend.