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Poll Indicates Investing Has Declined Significantly

Posted by Larry Doyle on October 15, 2009 3:56 PM |

Have you given up on the market? Do you not trust the financial industry? Have you stuffed your money under the mattress? To an ever increasing extent, more and more Americans have become more risk averse when it comes to investing.

Alix Partners, a consulting firm, produced Half of Americans Have Stopped or Reduced Investing and a Quarter Don’t Intend To Invest for at Least Three Years:

Americans will be investing significantly less in the future, according to a new survey released today by AlixPartners LLP, the global business advisory firm, indicating that the financial crisis is likely to have a significant impact on investor behavior over the next several years.

While the U.S. financial services industry is slowly recovering from its biggest losses in decades, investor confidence appears to be recuperating tepidly at best.  A staggering 49% of people surveyed who identified themselves as “previous investors” reported either having stopped or reduced investing in stocks or mutual funds and 26% said they had no intention of investing in these bedrock financial vehicles in the next three years. The survey also found that among higher-income households, those earning more than $75,000 per annum, 21% of previous investors reported having stopped investing altogether in stocks or mutual funds.  These results could point to a significant structural contraction in the market for financial services firms and financial advisors, while also suggesting that financial companies should be thinking about how to better focus their marketing dollars in today’s uncertain market.

“Investors who had placed their trust in the investment industry are cross, cautious and confused,” observed Clarence Hahn, AlixPartners’ Financial Services Improvement practice co-lead.   “And while the collective loss of wealth in the past year has had a deep impact psychologically as well as financially, the irony is that the lost wealth can only be rebuilt through participation in the markets.  Financial-advisory firms therefore have two key challenges:  to figure out who really is going to start investing again; and to win back trust by building into their offerings a level of oversight, due diligence and risk management that will eradicate the possibility of similar meltdowns in the future.”

While brokers and financial planners will need to figure out how to reengage with a client base that was often ill-served, I strongly believe individuals will need to assume a greater degree of the burden to truly understand the art of investing. What does that art entail?  Let’s start with the following:

1. Learn about risk: how to measure risk, how to identify risk, what are the risks in different investments.

2. Learn about the values of diversity across asset classes and regions.

3. Learn about the impact of policy implemented in Washington and the influence it has on Wall Street specifically and finance and investing in general.

4. Learn about the differences in fundamentals and technicals.

How do you start to undertake the above four steps?

5. Read Sense on Cents.

Don’t necessarily give up on investing. Get started on educating yourself.

LD

  • beth s

    …’the irony is that the lost wealth can only be rebuilt through participation in the markets’…

    not unless you loose ‘all’ your money in the market again as they say history does repeat…i.e. madoff, sanford, milken enron, worldcom, ponzi etc.

  • fiscalliberal

    We should not be surprised with this result, especially the three years. My personal view is that the banking industry is still dysfunacitonal and it has shown no signs of changing the system to elimiante the screw up it foisted on us.

    Just a personal view, because I am retired, I had most of my portfolio in CD’s and mutual funds. That said, I am waiting until my stocks get back to near where they were and I am bailing out. I think your premise of being able to better understand risk is valid. However – until the banks are back to some form of honesty and transparency and the government shows some honest attempt to regulate, CD’s are the only place where principal is safe.

  • wrc1000

    I went to cash in the summer of 2008. At that time, I decided the only way to determine any direction of the market was to know which way the government was going to “invest” tax dollars. I gave up, it was gambling on what industry/businesses were getting bailouts and which weren’t.

    I am still in 100% cash. If I had stayed in the market, I would still be down 20% as of today’s close. Did I miss the rise from March – YUP, did I miss the sleep from worrying over market gyrations – NOPE.






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