Why Online Banks Are Giving the Stock Market a Run for Its Money
NEW YORK ( MainStreet) Despite record returns in the stock market and low interest rates on cash and fixed income, nearly three in four Americans are still staying away from investing in the stock market, according to recent research from Bankrate.com.
Even with market returns exceeding 30% in 2013, 73% of consumers across all age groups and income levels said they are not more inclined to invest in the stock market now.
"The wounds of the financial crisis are still fresh for individual investors," said Greg McBride, Bankrate.com's chief financial analyst. "As a result, they have missed out on a market that has recovered more than the losses and has continued to set new record highs."
Consumers have been steadfast in their decision, and the findings are consistent with Bankrate.com's survey results from April 2012 and April 2013. In both of those polls, 76% of Americans said they were not more inclined to invest in stocks.
In the past, investors often got back "on the bandwagon when the market reached its highs," he said. "Americans may be avoiding the buy-high, sell-low habit seen in previous market cycles, but only because they're not buying at all," McBride said. "An overly conservative investment stance compounds the problem that so many Americans have of not saving enough for longer-range goals like retirement."
The market has continued to move higher - 21% since last year's poll and 35% since 2012 poll, but "individual investors have remained very squeamish about the stock market," he said.
By allocating their money into money market and savings accounts, consumers are only focused on low returns and conservative investments, which only compounds the problem of not saving enough to begin with, McBride said.
"People are jeopardizing their long-term financial stability because of short-term market volatility," he said. "You need to establish a nest egg to support you for a quarter of a century." Investors could be holding back from worries that the market could drop again, but since volatility is impossible to predict, they should focus on stocks they want to purchase in the future, said Jeff White, CEO of American Financial Group in Philadelphia.
"More likely it is fear of the unknown that holds people back from buying stock," he said. "Since no one has a clue when volatility will occur, we suggest that people put together a 'wish list' of stocks they want to own long-term and then buy a few shares of each now and hope the market drops so more can be bought at lower prices. Dividends from some large companies with global sources of revenue are not going out of business."
Covestor, a registered investment advisor and online marketplace for investing which is based in London and Boston, is seeing the opposite trend, said Kalen Holliday, director of communications for Covestor. "Our assets under management on average have been increasing by 25% a month during 2014 and other online asset management companies are experiencing similar growth. While many investors may be shying away from investing with traditional asset management companies due to bad experiences with brokers or past portfolio plummets, the new breed of online financial services companies is thriving."