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Stock Market Soaring, Many Americans Missing the Boat

Statistics are tricky whenever people try to guess their underlying cause but it doesn’t make it less fun. A recent Gallup poll results [3] 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 [4], 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 [5] 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 [6])