As it currently stands, the stock market is in a fairly good spot. Interest rates on fixed income and cash are low, market returns in 2013 exceeded 30 percent, and the market itself is setting record highs. Despite all of the success over the past five years, however, Americans are still not likely to invest their hard-earned money in such a “volatile” way.
Research conducted by Princeton Survey Research Associates International and reported by Bankrate.com show that only 22 percent of Americans trust the stock market enough to be more inclined to invest in it.
The results were compiled from phone interview with over 1,000 participants. The results showed consistency amongst all ages and income levels and are consistent with the results from similar studies published in 2012 and 2013 in which 76 percent of Americans stated they were not more inclined to invest in the stock market.
— CNNMoney Investing (@CNNMoneyInvest) April 21, 2014
Greg McBride, chief financial analyst at Bankrate.com, believes that this behavior is going to be detrimental to the pockets of Americans in the long-run: “Americans may be avoiding the buy-high, sell-low habit seen in previous market cycles, but only because they’re not buying at all. An overly conservative investment stance compounds the problem that so many Americans have of not saving enough for longer-range goals like retirement.”
Rick Larrick, a professor of management at Duke University, corroborated McBride’s position about the conservative economic practices of Americans: “People would rather have pathetically low interest rates in something safe rather than (what they see as) the roller-coaster returns on the stock market.”
Instead of investing in the stock market, Americans have been saving cash and spending their money on bonds, both of which have a low return-rate but offer more stability in the short-term. In the long-term, however, bond investments are dangerous due to the potential impact of inflation, something bonds do not adjust for.
The stock market is like a game of pretend, let's pretend that stocks are going up when inflation is rising at a faster rate.
— John K. Galbraith (@JohnK_Galbraith) April 21, 2014
McBride believes that the best approach to investment is a balanced approach: “Investing over period of years in diverse portfolio is the pathway to financial stability.”
Unsurprisingly, the study found that those most comfortable with their current economic position are wealthy males with a college education and who are newer to the job market.
Image via Wikimedia Commons