Why Most Middle Class Americans Don’t Invest in the Stock Market

Source: Thinkstock

Source: Thinkstock

The stock market is still outside the average American’s circle of trust. After six years of rising prices, more than half of the nation continues to avoid stocks like the bubonic plague as questions remain about the health of the economy and the Federal Reserve’s course of action to raise unprecedented low interest rates.

A new survey from Bankrate.com reveals that 52% of Americans are avoiding making investments in the stock market. That doesn’t appear too unusual at first glance since the current economic recovery has been quite weak and weighed down with stagnant wages, but it’s somewhat surprising given that stocks have done so well in recent years. Since the bottom in March 2009, the Dow Jones Industrial Average and S&P 500 have roughly tripled in price. Last year, the Dow made 38 new record highs while the S&P 500 did the same 53 times.

Read: 10 Stocks That Pay Big Dividends for Your Portfolio

Nobody likes buying at the top, but other concerns are keeping Americans in the waiting room. Fifty-three percent of those who don’t invest in the market cite a lack of money as the main reason, with millennials as the age group least likely to give that response (42%). Almost 60% of Americans age 65 and older say they lack the savings to invest in stocks. Meanwhile, 21% do not trust themselves and say they don’t know enough about stocks to invest, 9% lack trust in stock brokers or advisers, 7% believe the stock market is too risky, and 2% fear high fees.

“Stocks aren’t only for the rich; even if you start small, investing in stocks through mutual funds or ETFs can help you build wealth over the long term,” says Claes Bell, CFA, Bankrate.com banking analyst, in a press release. “The key is to have an investment plan in place that aligns your investments with your risk tolerance and goals.”

Read: 3 Smart Stocks Millennials Should Consider Buying

In any given year, stocks can go up, down, or sideways. If you don’t realize this and match your life goals to your investment choices accordingly, the stock market can very well indeed be a scary place. For example, you generally shouldn’t have money that you will need within a year or two fully invested in stocks. The market can take a nose dive at any moment and ruin your spending plans. Making matters worse, you may also panic and sell at the worst possible time — the bottom.

Main Street is not the only one avoiding stocks these days. In a recent interview with the Orange County Register, former Pimco co-CEO Mohamed El-Erian, reveals that his own money is concentrated in cash. “That’s not great, given that it gets eaten up by inflation. But I think most asset prices have been pushed by central banks to very elevated levels.” He goes on to explain that central banks artificially lift asset prices by maintaining zero interest rates and buying assets. Furthermore, he believes there is a “massive gap” between asset prices and fundamentals.

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