Americans Remain Uninterested In Investing

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Gallup recently polled Americans on what they would do if they had an extra $10,000 to save or invest right now. Only 41% said they would invest it into the markets. In an acknowledgement to extremely low interest rates, 36% would leave it in cash instead of buying a bank CD.

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I’m not surprised by this as I think many retail investors and savers still feel the pain of the Great Recession, even though the markets have recovered to new highs. Young workers don’t seem interested in investing. While many Millenials participate in 401k plans at work, the generally aren’t interested in doing much more than that. And those that do enroll don’t seem to monitor or check up on their progress towards retirement.

I also see retirees continuing to be overly cautious. In the past, they would be concerned about ‘return of principal’ versus ‘return on principal,’ but that seems amplified now. Some are ready to invest, but most remain lured by alternative or off the beaten path investment opportunities that seem to offer the potential for good returns with low risk. Risk and reward (returns) are inextricably connected and the pursuit of the idea that they can be separated promotes the bad investment decisions as investors find disappointment and outright fraud.

This next survey question had me floored. Gallop asked the same survey respondents, what do you think the stock market did last year? If you don’t know the answer, the S&P 500 returned roughly 30% last year. And don’t feel bad if you didn’t know because an astonishing 93% of those surveyed didn’t know that. That’s right. Only 7% of Americans surveyed by Gallop knew what the markets returned last year!

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It was nearly a year ago that I wrote this post on market cycles. At that point, the market was in the middle of an amazing year and enthusiasm was building, especially in the financial media. As I wrote at that time, investors continued to be shy of the markets due to several political and geopolitical events. With all the fighting in Isreal, the Ukraine, and Syria and Irag, I really don’t think we’ve moved the needle since that point.

Americans still remain skeptical of the markets and investing and this survey confirms that point. There is some really good data available from a couple different sources that compares the average market returns versus what the average investor realized in their accounts. There are many factors that can impact market returns including the timing of cashflows in the portfolio, but I believe one of the largest is due to investor attempts to time the markets. There is a natural desire to try and call a top to this market, but we’re not there yet. I think you’ll know when we’re getting there because investors and savers will begin clamoring to enter the markets.

And therein lies the the trouble with timing the market. Even if you feel confident that the markets are absolutely topping, will you have the same inkling of when to get back in? And if you don’t re-enter the markets at the correct time, how much will miss while you wait?

I blame much of this anxiety on the news and media cycles. There really is too much noise and I think it overwhelms investors, who just tune it all out. Avoiding investing or remaining fearful is very detrimental to a long term savings program and it is why I believe investors need to establish a financial plan or roadmap and follow it, not the latest headlines.

Source and image credit: Gallop