Small investors still skipping stocks
Every year, Bankrate.com takes the pulse of average Americans with a survey, called the financial security index. And every year since the financial crisis, people have said they’re staying away from stocks, even as the markets rose.
“Risk aversion among individual investors still remains very, very high,” says Greg McBride, Bankrate’s chief financial analyst.
Seventy-three percent of the people interviewed for the 2014 survey said they were not more inclined to invest in stocks. McBride says usually at this point in a financial recovery, small investors do flock back to the markets, but not this time.
“They bought in right before the market peak in 2000, they sold out at the bottom, got back in and then got burned again,” McBride says. “And a lot of those individual investors simply have never come back to the equity markets.”
There can be consequences for investors who stay out of stocks, because, historically, the markets have been your best investment for retirement.
“You’ve got two choices” if you skip stocks, says Stuart Ritter, a senior financial planner with T Rowe Price. “One, you need to save more to make up for the earnings you’re not getting, or two, you need to recognize you’re going to have a smaller balance, and a lower lifestyle in retirement.”
Ritter says over every 15-year-period since 1926, the S&P 500 has gone up.
He says your best strategy is to ride out the short-term ups and downs, and invest for the long term.
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