Younger investors lose interest in stocks
After seeing their parents' portfolios get hammered, they're turning to low-risk, low-reward options.
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.
Its like buying a car and calling it an investment. Not right 99% of the time.
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.
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.
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.
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...
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.
......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.
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.
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 !
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"?
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