Long-term participation in the stock market can be one of the best ways to grow your savings over time and amass a substantial retirement nest egg. However, a recent study by BMO Wealth Management found that for many Americans, investing is simply not a top financial priority at the moment. Specifically, only 21 percent of surveyed U.S. adults said that “investing effectively” is the single financial priority that is most important to them right now.
One reason for this could be that many people believe they do not currently have enough disposable income to devote to the stock market because 26 percent of respondents cited “saving more” as their top financial priority, and 31 percent said the same about “reducing or eliminating debt.” Related concerns cited by surveyed adults included outliving their savings, the negative impact of a global economic event, a long-lasting downturn in the stock market, and having to suspend their saving as a result of a job loss. Thirteen percent of respondents also said that they have stopped investing and have not resumed, and 19 percent reported that they have moved their funds out of equities and into safer, cash-like products.
Another issue that may be causing some people to focus less on investing right now is the memory of an adverse market experience in the past. Indeed, behavioral finance studies have shown that investors tend to give more weight to losses than an equivalent amount of gains, and 31 percent of surveyed adults in the BMO report said that they had lost money in stocks and have not recovered. Considering how resilient the market has been, such responses could be coming primarily from people who closed out their losing positions too soon and/or were exposed to excessive idiosyncratic risk, i.e. a lack of proper portfolio diversification.
Working with a financial professional can help avoid such occurrences because an earlier survey from Gallup found that 40 percent of investor respondents who talked to their advisor during a sharp selloff in the market last year capitalized on the drawdown by purchasing stocks at a discount, compared to only 18 percent for individuals who did not consult with an advisor. Similarly, respondents in the BMO report expressed a desire to receive professional advice in the areas of investment management (52 percent), cash flow management and budgeting (27 percent), debt management (26 percent), estate planning (24 percent), health and long-term care needs assessment (21 percent), and insurance needs assessment (17 percent).
Sources: BMO Wealth Management, Investopedia, GallupPost author: Charles Couch