Oxstones Investment Club™Younger investors lose interest in stocks
After seeing their parents’ portfolios get hammered, they’re turning to low-risk, low-reward options.
After the market madness of the past few years, it’s easy to see why a growing number of Americans want nothing to do with stocks.
But what’s particularly striking is that younger investors are steering clear of the market. After watching their parents’ fortunes evaporate, they’re avoiding equities altogether.
A recent investing survey by MFS Investment Management found that 29% of investors said they would never be comfortable in stocks, Reuters reported. That feeling rose to 52% of investors younger than 31.
What does it say about the future of the stock market when nearly a third of all investors and half of younger investors want no part of it? Perhaps this sentiment is a reflection of the changing nature of the stock market itself.
Investing is completely different for us than it was for our parents and grandparents. High-speed trading dominates the market, giving Wall Street banks an advantage that regular investors could never have. And when that trading runs into trouble (see the still unexplained Flash Crash), regular investors pay the price.
We’re no longer in a buy-and-hold market in which you could stash your money and expect reliable returns from companies like Eastman Kodak (EK -22.78%), which is nearly bankrupt; Dow Chemical (DOW -1.66%), which has fallen 22% in five years; or AT&T (T -0.17%), which has fallen 14% in five years.
Sure, there are still some predictable stock market winners, such as IBM (IBM -0.77%), up 84% in five years, and a number of dividend-paying utilities stocks, including Southern (SO +0.35%) and Consolidated Edison (ED +0.34%).
But predictability is rare enough that some experts have proclaimed the buy-and-hold strategy dead. This is a market for active traders who are savvy on the technicals and can act as their own analyst. In fact, Forbes just published an article called “Why retail investors need to be their own analyst.”
“The days where the small investor looks at the fundamentals (i.e. P/E ratios, book value, EPS, and EBITA) are over for now,” Nick Santiago writes on InTheMoneyStocks. “The technical trader is the one who has the advantage, as it is simply the study of money flow and human emotion.”
So where are younger investors putting their money? Savings accounts, bank CDs and money market funds that earn less than 1%, Reuters reports. They’re paying dearly for safety, and they don’t mind one bit.
That kind of return starts to look a little better when compared with the 0.04-point drop in the Standard & Poor’s 500 Index ($INX -0.49%) in 2011.
It doesn’t sound like average investors will jump into stocks anytime soon. Most investors are worried that there will be a market crash in the next six months, according to a survey from the Yale School of Management. In researching its Crash Confidence Index, the school regularly asks investors whether they think the market will crash in the next six months.
In the latest reading of the index, about 25% of institutional investors and only 15% of retail investors said they were confident stocks wouldn’t crash within six months. That’s the lowest level of confidence since 2009.
http://money.msn.com/top-stocks/post.aspx?post=d760cbfc-4cd3-49f7-af65-4aef59ebfce8&_blg=2&ocid=vt_fbmsnmon
Tags: AT&T, buy and hold strategy, confidence in the stock market, Consolidated Edison, Dow Chemical, Eastman Kodak, IBM, Institutional Investors, retail investors, safety, Southern, stock market, stocks, younger investors