If you had an additional $10,000 what would you do with it? Would you set it aside in a low-interest savings account or would you invest a large sum of that money into the market? Well, if you’re in the majority then you’re likely to keep it out of the stock market.
According to a new Wells Fargo/Gallup Investor and Retirement Optimism Index survey, a substantial number of American investors are unaware of the significant gains that the stock market has made over the past year. In fact, fewer than 10 percent of investors realized that stocks averaged a 30 percent increase in 2013, while 37 percent listed a 10 percent gain and 21 percent believed they stayed the same.
Even with this knowledge, only 41 percent would put $10,000 into the stock market. More than one-third (36 percent) would hold it in cash and one-fifth would purchase a certificate of deposit with the new found money.
It can be understandable as to why many U.S. investors aren’t so adamant placing $10,000 into the market. The survey discovered that nearly half of investors feel both extremely or somewhat nervous (11 percent and 34 percent, respectively) and 38 percent are “a little nervous.” Only 16 percent are not nervous at all.
Gallup notes that with every bull market there is always a bear’s shadow surrounding it. With each additional gain made every month that shadow continues to grow larger and larger, which then prompts some investors to stand back.
“This raises important questions about investors’ ability to accurately assess market risk, and therefore to take advantage of the market to grow their wealth. It is exemplified by the finding that so many investors would opt to park an additional $10,000 in cash or CDs – where they are virtually guaranteed no meaningful growth – rather than invest it in stocks,” Gallup wrote in its bottom line.
“Investing in stocks is certainly not appropriate for everyone, in every circumstance; but making wise financial decisions requires some basic market knowledge. The good news is that investors by and large recognize that their financial knowledge is limited, and believe they need professional advice.”
We reported in April of another study that depicted the same kind of results: Americans are avoiding the stock market even in a low interest rate environment where the returns on savings and cash deposits are rather minimal. In another report, millennials are continuing to omit themselves from the stock market and stuffing their money under the mattress.
The risk aversion for many Americans can be the consequence of the financial collapse a few years ago that left many people decimated and in financial disarray. For decades, Baby Boomers worked hard and saved their money for retirement but then that all vanished in the Great Recession. This made millennials wary of the market.
“Millennials seem to be permanently-scarred by the 2008 financial crisis,” said Emily Pachuta, Head of Investor Insights, UBS Wealth Management Americas, in a statement. “They have a Depression Era mindset largely because they experienced market volatility and job security issues very early in their careers, or watched their parents experience them, and it has had a significant impact on their attitudes and behaviors.”
However, financial experts agree that investors who are sitting on the sidelines today need to begin taking risks in order to increase their retirement savings.
The Gallup telephone survey was conducted with 1,036 adult investors between Jun. 27 and Jul. 9. It contains a margin of error of +/- three percentage points.