Last year’s stock market volatility greatly upset Americans, with nearly two in three preferring to keep cash on hand rather than endure market volatility.
This is the latest finding from Allianz Life, which first asked this question in a recent survey of 1,005 adults aged 18+ in December.
And Americans are starting to spend more cash again, according to data released by the Department of Commerce in January. In December his savings rate was 3.4%. This is his highest in seven months and the biggest month-over-month rise since July 2021.
Cash savings seem more attractive given the higher yields of safer investments, but some experts say that as Americans withdraw money from the stock market in an attempt to avoid losses, they may see returns along the way. I am afraid that I might miss it.
Kelly Lavigne, vice president of consumer insights at Allianz, told Yahoo Finance, “If you’re holding cash to time the market, don’t do it.” What we do know is that as the market improves, most of these gains will come in just a few days. , will be late.”
“Ease of investment” declines
The reality is that investing in the stock market is on the minds of many Americans today.
“We can’t compare how many people are sitting in cash rather than investing back in 2020 and 2021, but one point we can see is investment comfort,” he said. LaVigne said.
According to the report, only 19% of Americans say they are satisfied with current market conditions and ready to invest now. This is down from 26% in Q3 2022 and 29% so far last year.
And more than three-quarters of Americans believe markets will remain very volatile in 2023. In fact, 65% say their retirement and investment plans will need to be adjusted if markets remain volatile in 2023, up from 57%. This time last year.
“Today’s market volatility is terrifying, especially for those approaching or approaching retirement,” LaVigne said. “But money kept in cash is not going to help you with your finances in the long run. Cash in your checking account is not growing every day, so you are going to lose money to today’s inflation.”
The whisper of a looming recession, coupled with still-high inflation, has not helped Americans feel the need to take more risks when investing.
More than three-quarters of Americans are more concerned about paying the bills now than saving for the future economy, according to the report’s findings. As a result, a majority (55%) of Americans said they had stopped or cut back on their retirement savings due to rising inflation last year, and nearly half (45%) said they had cut back on their retirement savings to pay their bills. He said it had to be demolished.
Staying away from the stock market can backfire
But skipping the market now means these Americans could miss the upside when the pendulum swings back after the Great Recession, when investors fled the market quickly and reentered late. There is also a possibility.
The worst days in the market tend to be followed by the best days. Since 1980, the market has rebounded every time the big market has fallen, never hitting new highs, according to JP Morgan Asset Management research.
Over the last 20 years alone, the S&P 500 has had an annualized rate of 9.7%, but its annualized return is 10%, just 10 days away from the market’s best days, which tend to occur within a month from the 10 worst days. It has dropped to 5.5%. for research.
The S&P 500 is already up more than 8% year-to-date after gaining 7% in the last three months of 2022.
Rachel Elson, financial advisor at Perigon Wealth in San Francisco, told Yahoo Finance:
“There is a lot of data that shows people tend to sell at exactly the wrong time, but not many have fled the market. We’ve reinforced all of their concerns about the market in the last year.”
take a pragmatic approach
One way to slowly bring cash back into the market is dollar-cost averaging over three to six months, Elson says.
“The best way to keep your brain from sabotaging itself is to plan ahead,” she said.
For example, if you have $100,000 in cash, you can invest in four chunks of $25,000 on specific days each month. It is also important to diversify your equity portfolio across different sectors such as international equities, US equities, large caps and small caps. It spreads your risk.
“Then stick to the plan,” Elson said. “Don’t worry about buying on good days or bad days.”
That also doesn’t mean you can’t put some of your cash into safer investments.
Michael Wagner, a chartered financial planner and co-founder of Omnia Family Wealth, said: “Many market observers expect more growth in the stock market, especially if corporate earnings start disappointing in the face of a recession. I expect pain to occur,” he said. interview. “By allocating a portion of the portfolio to his three-month T-bill, which he pays 4.6%, he can effectively move forward, but he cannot get paid to wait and see. can.”
Finding safer investments with decent returns isn’t too difficult for now, thanks to the Federal Reserve’s rate hikes. In addition to his 3-year T-bill cited by Wagner, the 6-month T-bill and his 1-year T-bill now yield around 4.6% and 4.7% respectively. It is also possible to find his 1-year Certificate of Deposit (CD) that offers a yield of 4.25%.
You can also use a portion of your cash to guarantee 100% return. You can also pay off high-interest debt such as credit card bills.
“That way you’re still improving your overall financial situation.”
Kerry is a senior reporter and columnist at Yahoo Finance. follow her on her twitter @Kelly Hannon.
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