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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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37 Comments

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  1. 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 indicate what was and what will be to the best of our collective knowledge of the those numbers. The trends indicate that people don’t take risk into consideration when they gamble so there’s no motivation to lie to them. They put the odds right on the machines. The trends indicate that a portfolio with the appropriate asset allocation, taking into consideration risk tolerance, and the passage of time will generate more wealth than is required to be put into it. That’s the truth and if you have a clear goal in mind for what you want to happen to your money there’s actually no thought that has to go into it because the numbers don’t lie. Bernie Madoff lies. Glenn Beck lies. I lie. Ramit lies. We’re human and it’s not the mirrors responsibility to make us like what we see.

  2. 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 results that say three out of four people will file to claim Social Security benefits as soon as they’re eligible at age 62. Taking benefits as soon as possible at age 62 locks in payments that are only 75 percent of what they would be at age 66, which is defined as the full retirement age for the current wave of retirees. Delaying benefits at age 66 will raise them by 8 percent a year until age 70, after which benefits do not increase with age.

    The solution isn’t to worry yourself sick about it, but instead start to take action. Start cutting your debt immediately, especially high interest debt (credit cards, etc.). Keep your living expenses in line so you can free up money every month that can be invested into assets that produce income. (Rich people buy assets that produce income – income properties, dividend stocks, businesses, etc.) You need to get the power of compound interest in place to begin generating long-term wealth. If your home is going to be your biggest expense when you near retirement, think about downsizing or even relocating to an area where the cost of living can work well with your financial situation. Taking a part-time job or freelancing as you are a proponent of to help alleviate some of your health insurance costs is a great idea as well.

    No one ever wants to worry about running out of money or being a financial burden to your kids when you can put a system in place now to prevent any potential struggles. If you take a look at dividend stocks, this is a great time to put your money to work as you are getting a chance to pick up great companies that have pulled back a bit. People tend to want to wait for any selling to stop. Scaling in is the best way to get exposure, especially if your gut tells you that we could be headed for a mini-correction. I expect investors who stay the course to be on the receiving end of some great returns over the next few decades.

  3. 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.

    • 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.

    • 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 take. The overall trends of the stock market weren’t much help to people who lost everything in the great depression or who lost large chunks in past recessions.

  4. Al Pittampalli Link to this comment

    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.

  5. 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

  6. 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

  7. 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.

    • 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.

    • 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.

    • 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.

  8. […] Read this article: 44% of people plan to never invest again […]

  9. 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 just like you pointed out. “Sad thing is that no one told them about it and now they are in trouble………….

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