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Stock Market Soaring, Many Americans Missing the Boat

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NASDAQ Bear ReaperStatistics are tricky whenever people try to guess their underlying cause but it doesn’t make it less fun. A recent Gallup poll results showed stock market investment by U.S. adults is at its lowest percentage since Gallup has started asking (1998). It’s been on a steady decline since 2007 (65%) and this year it stands at 52%.

I personally know plenty of people who withdrew all or most of their investments when the stock market started going crazy in 2008. 2008 was insane. Of the top twenty largest gains by the Dow, ten were in 2008. Of the top twenty daily point losses, eleven were in 2008. Percentage-wise it’s not nearly as dire, since the Dow is so much higher than it was in the late 1920′s and early 1930′s, which basically own the largest percentage changes table (If people were losing their heads during the Great Recession, I can’t even imagine living through the Great Depression). The S&P shows similar dominance of 2008 (also in percentage charts since the S&P 500 started in 1957).

A lot of people got burned that year when they saw their investment drop, got angry at Wall Street, and have never been back. And so they participated in the fall but didn’t participate in the rise. And it stinks.

There are signs that the appetite for risk is returning among more sophisticated investors and institutions, but that may not extend to the median American, who did not not recover as quickly or as fully (if at all) as the finance industry did.

Rather than guess, I’m curious to know what you did during the fall and subsequent rise? We didn’t do anything drastic (I did sell a Target Retirement fund in 2007) but most of our investments were in retirement accounts that we wouldn’t need for 30 years. When you have that long of a time horizon, you can afford to be patient. Then, we started buy dividend stocks when we saw solid blue chip companies were trading at historic discounts. Names like Coca-Cola and Heinz. I was able to do that in part because we weren’t invested in the market outside of retirement accounts. Had we been invested, we would’ve just held into the valley and just recovered with everyone else who stayed around. I probably wouldn’t have put in any more money, I’m certain of that.

What did you do? Did you leave and not come back?

( Credit: AZRainman)

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14 Responses to “Stock Market Soaring, Many Americans Missing the Boat”

  1. I actually wrote post on the same poll that’s going live tomorrow. I’ve stayed in, took advantage of some great prices, and have seen some solid gains. I have read more and more about those who’re riding these highs are the who’re better off financially and much of the middle class has missed out. It’s vital to have the long term view with investing and if “you” do step out where will you park your cash to make anything to speak of?

  2. Special_Ed says:

    I didn’t do anything during the crash. Kept putting money in every month and it has paid off big time. I pulled out money last month to buy a vacation home, but otherwise, I have stayed in. When gold crashes to around $400, I will probably pull out of the sky-high market and buy all I can.

  3. NateUVM says:

    Most of my assets were similarly in retirement accounts. So there wasn’t much to do but to continue making my regular contributions. Remembering that my investment time horizon made this a buying opportunity more than anything else.

    The only investment that I have really stopped and, in fact, closed, was an allocation of my rainy-day savings that I made to a short-term bond fund. The recent(albeit still distant) prospect of rising rates made the associated volatility too much for the purpose those funds had within my overall portfolio.

  4. We did nothing, really. Just sat on our investments and crossed our fingers. For two years, I threw away everything related to our investments that came to the house. I knew, intellectually, that adding more money near the bottom was the right thing to do, but it still made me sick to my stomach to see our investments hemorrhaging. I knew I needed to stay the course, so I didn’t tempt myself to bail by looking at how badly the market was doing.

  5. Let’s see, the S&P 500 is at about the same level as in 2000–thirteen years ago. Exactly what boat has been missed by those who’ve largely stayed away from stocks over this period? :-)

    With respect to 2008: If you have many working and earning years ahead of you, riding out equities’ extreme volatility is surely the thing to do, if you’ve got the stomach for equities at all. But let’s say you were 55 in 2008, had, say, 60% of your retirement nest egg in stocks (probably less than most “experts” would recommend), planned to retire at age 60, and in 6 months saw stock values decline by half, putting a huge whoopin’ on your nest egg. On the news, people like Bernanke and Paulson are justifying unprecedented government interventions on the ground of avoiding a complete economic collapse and depression. Sounds like the 55-year old’s options are 1) cash out of stocks and work until age 65, or 2) stick with it and risk working until death. Not an easy choice, in the context of 2008, and I surely wouldn’t criticize anyone who chose #1. If there had been a total collapse, choice #1 would be looking rather smart. Never works to rate judgments with the benefit of hindsight.

  6. Scott says:

    We pulled money out of our Roth IRA at no penalty to help with a downpayment on our house in 2009 when the stock market had wrecked much of the account’s value. Otherwise, haven’t done anything more than continually invest in our retirement accounts and get lucky here and there with some unplanned but fortunate market timing.

  7. Aaron B says:

    I stayed the course, and have rebounded nicely. I stuck with my regular contributions and allocations, since I knew they were “right” for my situation and I have 25-30 years to go before retirement (sigh).

    I will admit that I’ve been tempted to reduce my stocks allocation *now* since it’s been doing so well recently. But that would constitute irresponsible attempts to time the market and predict that we’re heading toward a downturn. I always end up back at “stick with the plan.”

  8. Yana says:

    Yes, I left stock gambling, mostly after one of my stocks quit paying dividends and greatly lost value. I did dabble a bit after that, but don’t expect that I would go back to long-term stock investing. I’d rather keep what I have, and at most dabble for a quick and dirty profit ;) Speaking of which, I actually set up an account I have with a major bank for Bitcoin trading – but by the time I was able to use it, the price had gone quite high and it seemed a bit too risky to me.

  9. Long says:

    I pulled out of actively managed funds during the fall, but it was coincidental with my strategy to re-jigger my portfolio to an all index-fund asset allocation. I have been able to capture the market gains and have been re-balancing as needed. I won’t need to do anything for future falls/rises except re-balance.

  10. admiral58 says:

    I also know a lot of ppl who are missing out. I think we’ll have some sort of pullback over the summer, but that’s a good time for everyone to buy more.

  11. We benefited big-time because we did most of our investing when the market was low. I went as far as borrowing to buy those ultra-cheap stocks, something I never do (and got out of after the first year’s gains).

    It’s lovely buying stocks when you can’t go wrong. Nowadays, not so much. I’ve taken about 20-25% out in cash. The rest is in a combination of dividend producing stocks and one or two stocks I hope still have legs before the market runs out of steam.

    Clearly the market has accomplished a lot of its growth based on simple earnings growth (http://bit.ly/willitcrash).

    The amount of money the Fed has pumped out, and the growing skittishness about bonds, tell me there is still a period of PE inflation ahead of us before the market crashes. But to me that’s nervous territory. It can last 4 years (like the housing bubble) or it could run its course next year.

    Long term, I’m prepared to forego the last bith of froth before the next crash, as long as I’m left with lots of dry powder to pounce when stocks fall again.

  12. NateUVM says:

    It really frustrates me when people liken the stock market to gambling and try to justify their trepidation by blaming a recent retreat in the stock market.

    Sure, I understand that they may have incurred a loss that has severely undercut their investment objectives. That kind of loss CAN influence one’s impression of investing in the market. I DO have sympathy for thier plight.

    But their consternation with the market probably just means that they weren’t allocated appropriately with respect to thier risk tolerance. Either a financial planner didn’t help you properly discern your risk tolerance, or you weren’t honest enough with yourself to understand what it truly was. But that’s not the fault of the market.

    I’m sorry, if you were surprised at how much you lost, then you didn’t truly understand the risk or what you were invested in. And that’s not the market’s fault. That’s your fault.

  13. sam says:

    it is totally rigged. Bernake is devalueing the money and playing games to get the market up. He is hold rates down. This is going to blow to up. It is totally propped up by devaluing are hard earned money.

    sam
    When I was trying my hardest to get raises and money they said they couldn’t afford it. But keep studying and you might reach that American Dream!
    Then I quit and start my own company. These people turned into Vile backstabbing demons doing every curse and thign to make me fail. F them! Greed goes both ways I found. they want all the money and you to have no money. No wonder people with money hate you. It is so hard to make money that when they do they run from society. Our system is so messed up. I couldn’t believe the gall and two faced pos that people really are. And I just do websites for fun because I got sick of the day to day rat race. I would rather die.

    Sam


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