A recent survey by bankrate.com concluded that more than 50 percent of Americans are not invested in stocks in any way, shape or form. To say that this surprised me is an understatement.
It’s actually shocking to me that people aren’t buying individual
stocks. Especially since it means they don’t own any mutual funds that
contain equities, either within or outside of their retirement plans.
Returning to Basic Investing 101, stocks represent ownership in a
company. As such, they can fluctuate up or down in value every business
day. All business owners carry an element of risks, and since stocks
represent ownership, they also carry risk.
But with risk there are potential benefits. Returns are never
guaranteed, of course, but historically most stock market indexes
perform fairly well over time. That’s one reason I believe every
long-term investor should have a place for stocks in his or her
portfolio. Of course, there are no assurances, but historically stocks
have kept pace with rising costs.
For many households, their employer’s retirement savings program is the
only real savings. If retirement is far into the future, it could be a
mistake to totally ignore the equity markets. I understand that many
households have a distrust of Wall Street and are still shell-shocked
from the market meltdown.
Apparently this distrust of Wall Street carries over to financial
advisers because the same bankrate.com survey determined that 21 percent
of those surveyed didn’t trust stockbrokers or financial advisers.
Naturally, this saddens me because in my world, the financial advisers
that I interact with are of high quality, competent and caring.
History is no indication of the future, but investors who were scared
away and sold their stock holdings during the recession of 2008-09 have
missed out on sizeable market gains. To rub salt into the wound, if
those dollars went into the bank, they produced very minimal interest
gains over the past few years.
I’m not suggesting that every penny of your savings go into stocks. But
not putting any dollars into something that has great growth potential
makes you vulnerable to rising costs. Balance and diversification are
the key words for most investors. I’m confident that most households can
If you’re in need of assistance, there are a number of excellent
financial advisers who can help you through the maze of the investment
world. There’s also the Internet, where you can find and research all
kinds of financial data. The challenge with online research is sorting
through the plethora of information.
Finally, don’t overlook personal observations from your daily
activities. For example, if you notice everybody is eating at a certain
restaurant chain, wearing the same clothing label, shopping at a certain
store or driving the same brand car, do some research.
One of the most famous mutual fund managers of all time got some of the
best ideas for his stock portfolio from his own personal observation.
I find it more than a little disappointing that half the investment
world is choosing not to invest in equities. Owning anything is certain
to have bumps in the road. But a bumpy road doesn’t mean it’s not
drivable. Remember, with interest rates so low and life expectancies so
long, totally ignoring stocks is a recipe for problems down any road.