Younger investors lose interest in stocks

After seeing their parents' portfolios get hammered, they're turning to low-risk, low-reward options.

By Kim Peterson Jan 11, 2012 3:04PM
Image: Woman with computer (© Jose Luis Pelaez/Getty Images/Getty Images)After the market madness of the past few years, it's easy to see why a growing number of Americans want nothing to do with stocks.

But what's particularly striking is that younger investors are steering clear of the market. After watching their parents' fortunes evaporate, they're avoiding equities altogether.

A recent investing survey by MFS Investment Management found that 29% of investors said they would never be comfortable in stocks, Reuters reported. That feeling rose to 52% of investors younger than 31.

What does it say about the future of the stock market when nearly a third of all investors and half of younger investors want no part of it? Perhaps this sentiment is a reflection of the changing nature of the stock market itself.

Investing is completely different for us than it was for our parents and grandparents. High-speed trading dominates the market, giving Wall Street banks an advantage that regular investors could never have. And when that trading runs into trouble (see the still unexplained Flash Crash), regular investors pay the price.

We're no longer in a buy-and-hold market in which you could stash your money and expect reliable returns from companies like Eastman Kodak (EK), which is nearly bankrupt; Dow Chemical (DOW), which has fallen 22% in five years; or AT&T (T), which has fallen 14% in five years.

Sure, there are still some predictable stock market winners, such as IBM (IBM), up 84% in five years, and a number of dividend-paying utilities stocks, including Southern (SO) and Consolidated Edison (ED).

But predictability is rare enough that some experts have proclaimed the buy-and-hold strategy dead. This is a market for active traders who are savvy on the technicals and can act as their own analyst. In fact, Forbes just published an article called "Why retail investors need to be their own analyst."

"The days where the small investor looks at the fundamentals (i.e. P/E ratios, book value, EPS, and EBITA) are over for now," Nick Santiago writes on InTheMoneyStocks. "The technical trader is the one who has the advantage, as it is simply the study of money flow and human emotion."

So where are younger investors putting their money? Savings accounts, bank CDs and money market funds that earn less than 1%, Reuters reports. They're paying dearly for safety, and they don't mind one bit.

That kind of return starts to look a little better when compared with the 0.04-point drop in the Standard & Poor's 500 Index ($INX) in 2011.

It doesn't sound like average investors will jump into stocks anytime soon. Most investors are worried that there will be a market crash in the next six months, according to a survey from the Yale School of Management. In researching its Crash Confidence Index, the school regularly asks investors whether they think the market will crash in the next six months.

In the latest reading of the index, about 25% of institutional investors and only 15% of retail investors said they were confident stocks wouldn't crash within six months. That's the lowest level of confidence since 2009.

23Comments
Jan 11, 2012 4:25PM
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buy and hold stocks never had any guarantees.  There are no guarantees in life, but there are huge opportunity costs for staying 100% out of stocks.  Younger people who are putting their money in CDs and MMFs can hardly be called "investors" due to both their chosen asset classes and the amounts of their typical contributions.  It sounds like they don't have enough capital to invest so they're just building their rainy day funds and emergency funds.

Its like buying a car and calling it an investment.  Not right 99% of the time.

Jan 11, 2012 5:30PM
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Buy and hold for some stocks such as Apple, Chipolte, Starbucks has been very profitable, so I disagree withe general premise that buy and hold is "dead."It depends on the stock and fundamentals play a huge role. 
Jan 11, 2012 5:32PM
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It is sad that people do not invest for their future.  I am 75 but did not know anyone when young that would invest in stocks or most anything else.  It is only the more "sofisticated"  that invest for the future.  Most others consider "it is gambling" .   Well the biggest gamble is NOT investing in your future and like going into a gambling house guaranteed to loose.

 

I own some companies older than me and still doing well.  Thlink Dividends.

The savings rate in America is Deplorable.

Jan 11, 2012 10:52PM
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I wonder if Wall Street even realizes how badly it has shot itself in the foot this time? I doubt it. None of them seem to care about the consequences of their actions beyond about 90 days.  

I admire Gen Y investors who have recognized on their own that the stock market has been a scam for their parents and most likely will be for them too. Maybe their common sense instincts spell hope for us after all. I hope they realize that all this talk about active technical trading as a reasonable alternative to Buy and Hold is BS too. That just plays into Wall Street’s hand even more. It’s not that the Buy and Hold strategy is dead, it just sucks, which doesn’t obviate the fact that it’s still the best approach a small investor has available to them.

My advice to young investors is to avoid sales pitches and advertisements disguised as investment advice, like this article, and continue seeking alternative investments to the stock market which have meaningful value to them.  And when they find these investment alternatives, I suggest they keep it for themselves and don’t tell anyone over the age of 40 about it.

Jan 11, 2012 7:35PM
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no doubt - and i spell out details to "kids" i know and show them simple spread sheet numbers. 

 

for me my focus was FIRST to get into a house, then retirement savings.  i recall a guy trying to get me to invest in buying land before i ever bought a house.  it made no sense to me.  however the fudemental concept of setting a goal and planning a path was in me.  and THAT concept is greek to many kids i know. 

 

even now a bunch of years later the best retirement plan i can see is FIRST have a paid in full home. 

 

 I understand what you are saying. I'm saying, I was one of those kids and I could have invested a few dollars each week. With time and compounding and the control to leave it alone, would have made a big difference.
Jan 12, 2012 1:12AM
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My father and I didn't always get along, but he was very good with money.  I learned stock market investing from him--what he did was subscribe to a conservative stock market advisory service that provided very good advice.  Although he never earned more than $20,000 a year as a Federal employee (retired in 1971), he invested very well for which I am grateful.

My approach is a bit different--I am an aggressive investor in conservative stocks and take profits (and sometimes losses) much more frequently than Dad did.  I am fortunate that I haven't had to dip into my investments because I have a goal that I wish to reach before doing so.

One of the things that truly concerns me is the amount of student debt facing graduates these days.  I would have done anything to avoid that, including joining the military for the educational benefits (I happen to be a retired reservist who was activated 3 times from 1997 until I retired in 2004).  Work, go to school at night, take 3-6 hours at a time, do anything you can to avoid getting in debt.  So what if you don't graduate until you are 27, 28, 29, etc.  Coming out of college debt free more than offsets being in a load of debt and being a 22 year old graduate.  The burden must be tremendous.  If you default on student loans, you can't get a traditional mortgage.  I am most fortunate to be where I am today, and my father helped me get there.
Jan 12, 2012 3:21AM
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Maybe there is hope for the next generation yet. Get all the sucker money out and the only money for these Wall Street ****s left to play with is their own.

Sounds good.

Jan 12, 2012 7:46AM
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Patience, reinvestment of dividends and capital gains, not panicking when the market goes down, stay the course.  Capitalism will always win no matter what the Dems say.  We are a market based economy and with patience, and being a little conservative as you get older, you will get to your target.

 

Retired at 50, was self employed, made good money in some of those years(200-250K), but lived well below my income level but very comfortable.  Admittedly also very lucky.  I am 55 now and have never looked back, did I get nervous in 2000 and 2008?? yes, but i did not panic and I am now ahead of the point I was at back then...

Jan 11, 2012 7:17PM
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Anytime you paint a picture of a good chunk of the American popluation in one article (or a book for that matter) you can get into trouble.  History tells us investing in common stocks is the single best asset to commit extra cash.  Like anything, don't overpay and do your research before purchasing a slice of a company.

Jan 11, 2012 6:45PM
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With crooked corporate officers being rewarded record  millions of dollars every year for laying off employees to make profits and a blind eye by government officials taking money under the table, We have all been taught that investing into a company is just another way to make the executives and government elected  have a lavished life style, its a crooked game with crooked dealers.
Jan 11, 2012 11:44PM
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I agree with Someone, the buy and hold strategy isn't dead it just sucks right now.  This could also be said for alot of the 1970's when buying and holding would have absolutely sucked and the only thing you had to look forward too alot of times was a dividend.
Jan 11, 2012 8:47PM
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Remember that this isn't the old AT&T either when you talk about investments doing poorly. 
Jan 11, 2012 7:06PM
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......sounds like the "industry" isn't favorable of stocks either actually.  75% of institutional investors and 85% of retail investors think stocks WILL crash in the next six months.   (your own quote simply stated another way)

 

In the latest reading of the index, about 25% of institutional investors and only 15% of retail investors said they were confident stocks wouldn't crash within six months. That's the lowest level of confidence since 2009.

Jan 11, 2012 8:38PM
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Most younger people are financially naive.  Despite going to college they learned nothing except how to drink, have sex, and use a smart phone (some learned that in high school).  Let them invest in bank CD's and other low yield crap, that leaves more stock for me.

 

I've done very well in the market by not panicking and basically NOT listening to all the so-called experts on Wall Street.  You heard "sell in May and go away", well that's when to BUY if you are in for the long term.

Jan 11, 2012 4:49PM
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Buy and hold is for suckers.   There are no  fundamentals driving the market, it's all hype, trade on the news, sell on the fact.        Funny how now people take cold cash and buy worthless paper that doesn't even pay a dividend.   By the time the retail investor gets the news, he's already been burned by the insiders.   It's just gambling on a larger scale were again the house (insiders) have the odds in their favor.
Jan 12, 2012 10:49AM
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The newest generation is vewry well read in social media (not the MSM manipulated media).  They see and hear the complete manipulation of the financial global markets.  This entire show is run by central banks and their crony "primary dealers". How can the market continue to go up when mutual funds are cash poor from record retail withdrawals?...Easy, "overleveraged credit".  We all know how that story ends, don't we.
Jan 12, 2012 2:46AM
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This is great !

Our youth is finally waking up to this terrible scam.

I hope I live long enough to see this really effect Wall Street Greed.

When reading these posts, it's easy to see how many older Americans are brainwashed into thinking that Wall Street cares in any way about them.

Those  are the people who pay for Wall Streets pay checks.

The math is easy, every year about 80% of the American public loose money in stocks, and the majority who make money, are the Wall Street Exec's.

It was the same 30 years ago, and it's the same today !

Jan 12, 2012 7:58AM
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I have made money in stocks and I am a Cook in south florida the key is to try to get in front of the ball  and like several here said don't panic sell. I think Bank stocks are heating up and small banks are hotter. First off No European Exposuer Next the weak have already been weeded out. They also have strong local markets without Big Bank Bull. The small banks have to loan money to make money this is the way banking is supposed to work. Not credit default swaps and all the other weird things big banks do with your money.Check out SBCF up .25 in the past weeks BPOP starting to rise  BTC or for something a little bigger TRST. Banking is heating up and I want to be there  
Jan 11, 2012 7:03PM
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why would a young kid be "investing" in anything if he has college loans or other starting life expenses like a car, insurance, or apartment bills?  if they work for a company with a 401K, that's a start.  but to "invest" when your basics are not covered is pretty stupid. 

 

granted every investment company wants our cash now and every month.  but why go into debt to "invest"? 

Jan 12, 2012 12:12AM
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A stacked deck is hard to get new money.  With less money to play around with, brokers might not get the usual slice of the pie.  And for the back room poker game .. funny how the outsiders find a way of making the insiders cough up a little pocket change when they get to be the majority, for dreaming up something new at tax fleecing time.
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