Why Half of Americans Don’t Invest in Stocks

It’s often said that a rising tide lifts all boats, but a rising tide isn’t much help if you don’t have a boat. In the midst of a six-year market rally, which has seen the major stock indexes rise by over 150%, only about half of Americans own any stock investments at all. Those who don’t have missed one of the most spectacular equity bull markets ever.

Two surveys released earlier this year – one by BankRate.com and another by Gallup – found that about half of Americans don’t invest in stocks in any form or fashion (individual stocks, mutual funds, ETFs) and in many cases, not even in their retirement accounts such as 401(k)s.

While the two surveys reached slightly different conclusions, it is clear that many Americans are still leery of stocks in the wake of the financial crisis of late-2007 to early-2009, which saw indexes such as the Dow and S&P 500 plunge over 50%. Millions of investors bailed out of the market during that scary period and have never returned.

The question is, why?

In a survey conducted in April, BankRate.com found that 52% of Americans polled reported having no stock ownership in any form at all. Opting out of stocks, which have historically been one of the highest-returning types of securities available to individual investors, is likely to have some negative consequences for Americans over the long term.

Another poll conducted by Gallup in April found that 55% of US adults reported having money invested in the stock market in one form or another. Yet that’s well down from the high of 65% reported in 2007, but above the low of 52% reported in 2013.

In the run-up to the financial crisis, Americans threw caution to the wind. Despite having been burned just a few years earlier by the popping of the dot-com bubble, Americans at the dawn of the financial crisis were more devoted to stock investing than ever before, as you can see in the chart above.

This, however, marked the high-water mark on investors’ participation. One year into the financial crisis, stock ownership levels plummeted 8 percentage points to 57% – and kept on falling all the way into 2013, finally bottoming at 52%. We’re only marginally higher than that today.

So why are about half of Americans not investing in the stock market? In BankRate’s survey, more than half of stock avoiders said the biggest reason they don’t invest is they don’t have the money to do so.

Coming out of one of the worst recessions of the last century, where many have had trouble finding gainful employment, many Americans have found it difficult to earn enough money to save and/or invest in stocks.

People with incomes under $30,000 per year were the most likely to cite a lack of sufficient funds to get in the market. But that result also may reflect a misconception that you need a lot of money to benefit from investing in stocks.

As noted above, Gallup’s data reveal that across the nation, 55% of Americans have at least dipped their toes back into the stock market (or never left). In contrast, investors who don’t invest in the stock market today congregate mainly within two groups:

• Americans ages 18 to 34. Young investors have the most time to benefit from a bit of risk taking, and plenty of time to recover from the occasional downturn. Yet only 49% of them are in the market today.
• And poorer Americans earning less than $30,000 annually. Not surprisingly, only 21% of the sub-$30,000 set are invested in the market, according to Gallup.

In contrast, Gallup notes just one group that owned stocks before the financial crisis, kept owning stocks all the way through the recession, still owns stocks today and consequently has reaped the lion’s share of the gains from the rising stock market: Upper income Americans.

According to Gallup, apprx. 90% of Americans earning $75,000 a year or more owned stocks before the financial crisis. Some 88% of them continue to own stocks today.

Yet the point of today’s post is that you don’t have to be upper income to invest in stocks. There are dozens of diversified equity mutual funds that accept as little as $1,000 to get started. There are even some that will accept as little as $100.

If you are one of those people who are on the sidelines, or are under-invested in stocks, or if you fear that the market will turn sharply lower as soon as you get in, call us – we can help you! Call us at 800-348-3601 and speak with one of our experienced, non-commission Investment Consultants. Or visit our website at www.HalbertWealth.com.