38% of Americans Wouldn’t Invest in the Stock Market

Back in 2001, the first iPod came out to great acclaim. It was $399, no small price for a portable music player back then. But many were willing to pay and it helped pave the way to Apple’s booming success. If you had taken the money for that iPod and invested it in Apple stock instead, your stock would be worth over $60,000 today. Most people probably wouldn’t have minded sticking with CDs for a while longer for that kind of return on investment.

However, if you had instead bought stock in the iPod competitor, Zune, you would have a stock worth nothing today. Hindsight is 20/20, and unless you’re Warren Buffet, it can be very difficult to predict what stock will succeed.

If even seasoned investors struggle, what hope do the rest of us have? In a recent study, we found a majority of Americans fail investment literacy. Other studies have shown that many people inaccurately believe real estate is the best investment choice. By most standards, it isn’t: The stock market has proven to have a more reliable return than the housing market.

With this in mind, we wanted to know who Americans would turn to for investment advice. We asked 1,000 people whose opinion they would rely on the most when choosing how to invest $10,000 in the stock market.

The answers we found are listed below:

Key findings:

• 38% of respondents said they wouldn’t invest in the stock market
• One in three would pay for a financial advisor’s advice
• Men are more likely to rely on their own opinion for investing

38% wouldn’t invest in the stock market at all

In 2008, the stock market crashed, coinciding with the United States’ slide into the Great Recession. Millions lost their jobs and homes; numerous businesses shuttered. Much of the blame for the recession was placed on reckless and predatory practices of investment banking institutions. In the end, only one top banker was jailed for his role in the crisis.

Therefore, it becomes clear why 38% of respondents opted to answer that they would not invest at all.

Meanwhile, about half of millennials were in college or entering their first year in the job market. Despite bearing very little responsibility for the economic crash, millennials bore the brunt of the repercussions. By April of 2010, the unemployment rate for adults under 25 was just shy of 20 percent — more than twice the rate of older adults.

Millennials are most opposed to investing

Millennials would continue to feel the effects for years. Underemployment, low wage growth and student loans resulted in financial struggles that many millennials continue to feel today.

Considering the effects of the last market crash, it’s not terribly surprising that 46 percent of adults aged 25 to 34 said they wouldn’t invest in the stock market. Many of the financial institutions that played a role in the last recession continue to operate as investment banks today. Though employment and wages are up, the crisis hasn’t been forgotten.

18 to 24-year-olds stood out from other age groups in a few ways. It seems growing up online may have influenced their responses. Overall, getting advice from investing blogs, articles and forums was the least popular choice.

However, 11 percent of the 18 to 24 age group said they would rely on that resource. This was more than twice as much as any other age group. They also said they would rely on the opinions of friends and colleagues at a higher rate than other age groups.

1 in 3 would use a financial advisor when investing

When it comes to those interested in investing $10,000, some would rather leave it to the professionals. A third of our respondents said they would most likely rely on a paid financial advisor to decide how to invest in the stock market.

The preference for a financial advisor followed a clear trend by age with the youngest least likely to choose this option and oldest the most. This may say more about the ability to pay for an advisor at each stage than about trust.

Men are more likely to rely on their own opinion

In our study, men were eight percent more likely than women to say they would rely on their own opinion most when choosing where to invest. Some of this gap may be due in part to familiarity, since more men buy stocks than women.

The Confidence Gap was a study done by Cornell University that found men tend to over-estimate their performance while women tend to underestimate theirs. It seems the confidence gap extends to investment decisions.

However, women may be still underestimating themselves. Two different studies have shown women are the superior stock traders. Interestingly, that lack of over-confidence may be the culprit. This study showed that women’s risk aversion and a tendency to trade less played a role in their investments outperforming men.

The confidence gap may be changing generationally, at least when it comes to investing. Women aged 25 to 34 were only two percent less likely to rely on their own investing opinion than their male counterparts, while women aged 18 to 24 were actually two percent ahead of men their age. That being said, the results may be more revealing about men than women. In our survey, younger women were on par with the average for all women, while younger men’s confidence was lower than older men.

When it comes to stocks, most people won’t make the $60,000 guess. However, with good research and advice, many people can get a solid return on investment. For a lot of people, making that choice may mean turning to a financial advisor, while for others it may mean turning to mom and dad. A good investment, like good credit, can provide value for years to come. Choose wisely.

Methodology

This spending study was conducted for Lexington Law using Google Consumer Surveys. The sample consists of 1,000 respondents, with an average margin of error of 2 percent. This survey was conducted on January 9th 2018.