A new survey of investors has found that, despite high market valuations, Americans are willing to put their money in the stock market right now. Only 1 in 4 consider the current environment a good time to invest – a sharp drop of nine percentage points from 34% who said the same three months earlier.
The survey, conducted by the Allianz Center for the Future of Retirement, also found that nearly two-thirds of respondents told pollsters they expect a major recession in the near future.
The last time investor sentiment was this bullish was four years ago, when the stock and bond markets were simultaneously hit by inflation that hit a fourteen-year high.
In comparison, today’s economy is growing. The unemployment rate is low, and interest rates, while higher than their pandemic-era numbers, remain below historical averages. Although inflation remains high, consumer spending continues to slow.
“I don’t know when I’ve seen numbers this skewed,” said Kelly LaVigne, vice president of consumer information at Allianz Life.
The apparent conflict between soaring commodity prices and worried investors boils down to fears of volatility and expectations that the broader economy is overdue for a reversal. Half of the respondents in the survey said that they have changed the money they have invested in order to make them not at risk of losing if it goes down.
That’s probably a mistake, says Scott Cole, founder and president of Cole Financial Planning and Wealth Management. “There is a reason why [stocks] they hit high. You really shouldn’t be afraid of that,” he advises.
But he adds that this impulse is understandable: “I think there’s a human instinct to think it’s not going to last forever.”
Wall Street’s wealth is facing Main Street’s woes
All the headlines about AI fueling the bubble and causing layoffs have made Americans question the market’s prosperity, Cole said. In addition, boom times on Wall Street don’t reflect the reality of high grocery and gas prices straining household budgets.
“That disconnect makes people think that … so, it must be a house of cards,” he noted.
“Fear is a common factor,” says Rick Kahler, founder of Kahler Financial Group and a certified financial therapist. “This market will go down and the economy will go down; we just don’t know when,” he wrote in an email to Money.
A period of stagnation is a good opportunity to reflect on your goals and review your assignment to make sure it still supports those goals, Kahler advises.
“For those who are legitimately rethinking their permanent exposure to risk for their financial planning purposes, this could be a good time to reduce exposure to the markets,” he said.
People hoping to retire soon or on a fixed income should be especially sure to have some assets that aren’t exposed to stock fluctuations.
“If you’re going to need some money in the next year or two, that shouldn’t be in the market,” Cole said. Keeping a portion of your portfolio in instruments such as CDs or Treasuries will reduce your chances of losing portfolio positions.
But for small investors, staying the course is the way to go. “High and low time markets rarely work over time,” Kahler said. Even financial experts have a history of laxity when it comes to calling peaks and troughs, which is why a long-term plan that considers volatility is so important.
“Try to ignore both your speech and your feelings,” Cole said. “[This] that is why investing is difficult.”
