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44% of people plan to never invest again

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A recent survey shows that 44% of people plan to never invest money in the stock market again.

“Prudential, which polled more than 1,000 investors between the ages of 35 and 70 online earlier this year, found that 58% of those surveyed have lost faith in the stock market. Even more alarming, 44% said they plan to never invest in stocks. Ever.”

Think about that for a minute.

That decision is not the well-reasoned response of someone who has carefully evaluated the risk and reward ratio of investing.

It is an emotional response born out of fear (“I don’t want to lose my money!!!”) and ignorance (“this stock market is a crock!”).

Here are a few notes to consider:

  • Perhaps the worst financial move you could make would be to withdraw from the stock market. These are some of the same people who will complain about money their entire lives, never stopping to realize that their own behavior — decades prior — caused their financial situation
  • If you’re truly risk-averse, you have other options to mitigate risk, such as investing in lower-risk investments or changing your contribution rates. However, this assumes you are rational and will “understand” the options. The truth, of course, is that discontinuing investments is anything but rational.
  • I don’t only blame these people, by the way. Although we are responsible for our own actions, the financial education in this country has failed us.
  • Ironically, as the Wall Street Journal notes, “It looks as though many of the retail investors now getting back into stocks are the same people who bailed from the market just before the start of a historic bull run.” What’s the takeaway? You will never be able to time the market accurately over the long term. This is where some crackpot commenter will say, “DUH RAMIT, I SAW THE HOUSING CRASH COMING A MILE AWAY AND PUT ALL MY MONEY IN RED BRICKS!! NOW IT’S SAFE!! HA HA AHAAHAHA.” You may get lucky with timing once. But eventually, you will lose
  • If you’re in your 20’s and 30’s, your time horizon allows you to withstand temporary downturns and still come out ahead by retirement age
  • The idea that “I don’t want to lose my money” ignores the fact that by not investing, you will also lose money — it will just be an invisible loss that will only be realized decades later
  • Older people who lost everything in the stock market should never have been in that position — their asset allocation failed them
  • The investment strategy for the vast majority of individual investors should be passive, buy-and-hold investing. There’s no need to obsessively monitor investments or day-trade. I check my investments every 6-12 months as I have better things to do than micro-monitor these numbers.
  • Target-date funds make sure your asset allocation is always age-appropriate with little/no effort from you. It is one of the finest automation strategies in life.

If you’re curious how to set up an automatic investing plan — including which investing accounts I use and how I chose my asset allocation — pick up a copy of my book. Here’s the print version and Kindle version.

Results from the book:

“Thanks for the advice. Have been able to build 25k in a roth, 7k in a 401k, automate all my finances and live a bliss life thanks to your book.”
–Adrian S.

“Since I bought your book, I’ve cleared five thousand in credit card debt and twenty thousand in student loans. I’m maxing out my roth and my 401k, have a savings plan and negotiated my way into six figures.”
–Nicholas C.

“After buying your book, my personal finances have changed completely…all of my credit cards (which I pay off in full each month) are completely automated. I also rolled both 401ks into a Vanguard IRA.  Yesterday, I was able to put enough money into the IRA to max it out for the year 2010…something I didn’t think I’d be able to do for a few years.  I’m setting up an autopayment plan to put my 2011 IRA payments on cruise control.”
–Steve K.

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38 Comments on "44% of people plan to never invest again"

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Evan
Evan
5 years 3 months ago
This is why casinos make money. The owners know people don’t care about how much money they risk losing but only about how much money they might win if they ignore the truth. If people cared about the monetary risk of gambling they wouldn’t gamble because the odds are written right on the friggin’ machines! Those numbers don’t lie nor do the numbers used in determining stock market trends. Only people lie because they are the only ones who KNOW the truth. The numbers ARE the truth! The numbers represent “what is” or dare I say it, reality. The trends… Read more »
Paul Rubillo
5 years 3 months ago
Ramit, Big mistake as you say for individuals to ignore the stock market completely. Take a look at some other survey headlines from various survey outfits regarding retirement released in the last six months; – 35% of Americans over the age of 65 rely almost totally on Social Security alone. – 31% of workers have saved NOTHING for retirement. – Approximately half of all American workers have less than $2000 saved for retirement. – Only 17% of employees are on target to reach their retirement goals in terms of income replacement. It gets even worse when you hear recent survey… Read more »
Bob Weber
5 years 3 months ago

People have no concept of what ‘the stock market’ even is (that goes back to financial education in this country). To many people, it’s some nebulous pseudo-organization that steals your money. There are many high risk ways to invest in the stock market and there are many very low risk investments that can be made. For someone to say they will ‘never invest in the stock market’ is ridiculous, the question itself is designed to invoke an emotional response, not a rational one.

Lindsay
Lindsay
5 years 3 months ago

If someone doesn’t know what the stock market is, then they shouldn’t invest in it. I don’t see what’s so unreasonable about that. I have plenty saved up and continue to save for retirement, but I put it all in a low-earning, guaranteed fund. I consider the employer match to be my earnings. I’m not gambling my savings on something that I don’t understand and that I’ve witnessed can be volatile and actually COST me the money I’ve worked so hard to save.

Lindsay
Lindsay
5 years 3 months ago
I should clarify that I would never say “never,” and I plan to eventually learn how to invest in the stock market and do so. But not with my retirement savings. That money should be untouchable and guaranteed. I would only gamble with separate savings, for example saving up $1000 in a special savings account to be used for investments only. Much as I would only take a $20 bill into a casino. It’s how much I’m willing to lose. You have to be willing to lose the money you put into the stock market, that is the risk you… Read more »
Al Pittampalli
Al Pittampalli
5 years 3 months ago

As my old finance professor at NYU Stern used to say, if you put 1000 monkeys on pianos, one of them is bound to play the first 3 notes of Beethoven’s symphony. Great example of survivorship bias. You often hear about the 3 people who timed the market correctly and made millions, but rarely hear about the 300 who didn’t and lost. Great reminder.

Gene Marks
5 years 3 months ago

Agreed that it’s a pretty dumb idea to discount the stock market entirely. It points to a pretty profound lack of understanding of how the markets actually work.

Gene Marks
http://www.twitter.com/genemarks

MikeG
MikeG
5 years 3 months ago

Sure, but what if the US market goes like the Nikke did ? http://ca.finance.yahoo.com/echarts?s=%5EN225#symbol=%5En225;range=my;compare=;indicator=volume;charttype=area;crosshair=on;ohlcvalues=0;logscale=off;source=;

If japanese people followed your advice and money into the market for 26 years, they would have lost fortunes. Theres no guarantee that the US market is going to do the same for the next 26 years.
see : http://www.resourceinvestor.com/News/2009/9/Pages/Comparing-the-SP-and-the-Nikkei-1400-by-year-end-400-by-2014.aspx

Anthony StClair
5 years 3 months ago

In other news, these same sad bastards came to the other following conclusions…

* After being dumped by someone in high school/college, they will never date again.
* After a fender bender, they cut up their drivers’ licenses, threw away their car keys and swore they would never drive again.
* After anything whatsoever that caused them pain or loss or discomfort, they gave it up, and now can be found in the corner of a basement, sucking their thumb, wrapped in a blanket, and gently rocking back and forth, making disturbing cooing noises.

Evan
Evan
5 years 3 months ago

Sad thing is no one lost anything until they sold it for less than they bought it for. I learned that lesson in 9th grade playing drug wars on my graphing calculator.

Lindsay
Lindsay
5 years 3 months ago

Evan, most people with retirement accounts are invested in funds. They don’t have any control over holding or selling individual stocks. Someone else is doing that and most people have no idea who is doing it or why, or how.

Endora
Endora
5 years 3 months ago

Comments such as this, based on bullying rather than kindness and reason, do nothing to assure people that the market is anything less than herd mentality.

Many companies are trading far above valuations; nonsense being propped by the Feds.

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steve ward
5 years 3 months ago
to be honest Ramit, i blame a lot of it on not having a sound plan, there was a lot of people told and doing the telling saying ” that stock investing is a sound investment.” That Ramit is BS, sure you can make money but you have to put time and effert into stocks. yet no one that i talked to who worked for a living did, so when things happen like the always do they lost big or enough to make them hate the market. Investing period is a Game THAT you will Win and you Will loose… Read more »
Johan
Johan
5 years 3 months ago

Many Thanks Mike

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getagrip
getagrip
5 years 3 months ago
I have a friend when we first met 15 years ago swore he would never invest in the market because he had put a few grand into a stock out of college based on a broker’s advice and when the stock dropped he panicked and yanked it out. Now over the last couple of years he has had to deal with his mother’s finances since she’s suffering from Alzheimers and through that he saw how his father had invested and more importantly how those investments paid off for both a trust his dad had set up for him and various… Read more »
shiv
shiv
5 years 3 months ago
I’ll speak up for the rational minority who have (at least partially) withdrawn from the stock market. Although I still contribute to my 401k (can’t beat the instant return of matching funds), I have slowly withdrawn all non-retirement investments from the stock market over the last few years and have instead chosen to invest in direct ownership of rental real estate. My faith in the long-term passive return on stocks is tempered by energy and environmental concerns. Simply put, I believe the constraints of the backside of the peak oil curve will prevent continued expansion and growth of stock values.… Read more »
Steve R
Steve R
5 years 3 months ago

The question may be what did Prudential ask vs what survey participants heard. Perhaps they interpret “stock market” as owning individual stocks. A proportionate age grouping of survey takers (versus USA population breakdown) between 37 and 70 would put the median age north of 55. At that age, there is little there is little need to be invested in individual stocks. The survey is intended to drum up business for Prudential.

Anonymous
Anonymous
5 years 3 months ago

I was wondering the same thing. Did respondents interpret the question to be about individual stocks (cf. indexed investing)?

Paula @ AffordAnything.org
5 years 3 months ago

I’ve unfortunately heard friends say the same thing — “I lost half my money in the market crash of 2008. Now I’ll never invest again!”

It makes me want to slap my forehead, since all my friends who are swearing to stuff their life savings in their mattress are in their late 20’s.

P. Hunter
P. Hunter
5 years 3 months ago
I learned a lesson in life which is the fact that you can’t save everyone. It isn’t ignorant nor rude. You can only force people to learn, want, invest, etc up to a certain limit. If no one wants to learn or take a chance on anything, no matter how rationally, logically, emotionally, etc a situation is explained, then there is nothing more you can do. Ramit and a few commenters are aware of the lack of financial education for many people (which is true) but I recently became aware that most people do not want to learn and/or be… Read more »
johan
johan
5 years 3 months ago

Bitcoins sounds interesting, anyone know how it works, i find a video on http://bitcoinlistings.com/2011/06/bitcoins-how-it-works/ but i dont understand…anyone tried it?

MikeG
MikeG
5 years 3 months ago
Bit coins use a computationally infeasible algorithm to generate “tokens” which are then traded as currency. They get their value from agreed exchange, that is they are valuable because “we” all say they are. As soon as people say they’re not worthy anything (ie, refuse to exchange hard goods for them), then they’re no longer valuable. Also the value will plummet if someone cracks the algorithm for generating valid tokens.. But right now “miners” are finding them at a rate that is barely worth the electricity cost to find them. Theres a really cool statistical analysis of the economy of… Read more »
Financial Independence
5 years 3 months ago

Why would one do it to himself?

– Only 202 of the 500 biggest companies in the United States in 1980 were still in existence 20 years later.
– On December 29, 1989, Tokyo’s Nikkei stock average reached its all-time peak of 38,915.87. Twenty years later, the Nikkei has never again reached that level — and, in 2009, reached a new low of 7,054.98.

We have already lost a decade – with to gains on the stock market and the other one is ahead of us. What is the point of putting money in it?

Anonymous
Anonymous
5 years 3 months ago
The problem is math education and our cultural attitudes toward math. Saving for retirement is a hybrid psychology and math problem. Compared to residents of other developed countries, Americans are particularly loath to think about math. This is silly, because the math’s not that hard, and the consequences are particularly disastrous. Ramit, because you aspire to rationality, you might want to look into research by the economists Ayres & Nalebuff. They argue that the most risk-averse among us might paradoxically want to increase our exposure to stocks when young, and we should especially avoid target-date retirement funds. You give advice… Read more »
Anonymous
Anonymous
5 years 3 months ago

Heh, I was just reminded of your “The problem’s not education!” stance. I disagree. Good math education means better intuition about different outcomes. It means that people would expect and not be surprised by major downturns. It means that they’d realize that in general, simply investing in bonds or TIPS isn’t going to be enough. The problem is that people are so unfamiliar with compounding and stochastic dynamics that any nonlinear, non-deterministic relationship becomes an excuse not to think.

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[…] harder than others is with investing. According to this article at I Will Teach You To Be Rich, 44% of people plan to never invest again. We all know the market fluctuates – after all, that’s its biggest flaw and biggest […]

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[…] study says that most Americans are not preparing for retirement; another finds that 44 percent will never invest again. But the top 1 percent are earning more income, and keeping more of it, than at any time […]

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[…] study says that most Americans are not preparing for retirement; another finds that 44 percent will never invest again. But the top 1 percent are earning more income, and keeping more of it, than at any time […]

trackback

[…] study says that most Americans are not preparing for retirement; another finds that 44 percent will never invest again. But the top 1 percent are earning more income, and keeping more of it, than at any time […]

trackback

[…] study says that most Americans are not preparing for retirement; another finds that 44 percent will never invest again. But the top 1 percent are earning more income, and keeping more of it, than at any time […]

Vic
5 years 3 months ago

Investing in the stock market seems to be like gambling. However, the truth is… it is not. To gamble is to beat on probabilities, but to invest is to explore on these probabilities. There is a learning that is achieve overtime on investing. Moreover, success here is calculated, as we can calculate the risks.

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[…] retirement; a additional finds including th&#1077 intention &#959f 44 percent w&#1110&#406&#406 b&#1091 n&#959 means invest again. B&#965t th&#1077 top 1 percent &#1072r&#1077 earning more returns, &#1072n&#1281 maintenance […]

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[…] study says that most Americans are not preparing for retirement; another finds that 44 percent will never invest again. But the top 1 percent are earning more income, and keeping more of it, than at any time […]

Chad
Chad
1 year 14 days ago

The arrogance of some of the comments in this thread are astounding. Many of you choose to invest in the stock market. Great for you. If that is something that you choose to do, then more power to you. However, if someone chooses not to follow your particular path, then great for them. If that person chooses to never invest in the stock market, there is nothing “wrong” with them. It simply means that person has made a different choice than the choice you made, and may invest their money elsewhere.

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[…] are loads of people in the US who don’t invest in stocks. And while there are hundreds of reasons why this might be so, we’re going to limit […]

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Mr William Cole
11 hours 35 minutes ago

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