We own stocks, stock mutual funds, and stock ETFs in our retirement portfolio. But the degree of equity exposure in our investments has gradually declined since late 2009. And, even though the market indices have rebounded, I am not inclined to change our exposure. I’m not the only one that feels that way. So why are Americans avoiding stocks?
1. They live in fear of another 2008 market collapse. This is a legitimate fear and the closer you are to retiring, the more real the fear is. A 40% drop in market valuations in your first year of retirement can be devastating for portfolio sustainability.
2. Their sense of security and vulnerability is repeatedly challenged by the extreme volatility of the market. Yes the market has moved up but the constant, extreme lurching up and down is nerve-wracking. The obvious solution to this problem is to ignore short term market swings. That is hard to do if you pay any attention to the news. Also, there is that concern that this week’s downward lurch might signal the beginning of something far worse.
3. We have learned that the “essential retirement income” core of our retirement funds shouldn’t be in the stock market under any scenario. This is the Zvi Bodie theory and now mine. Other conventional theories of retirement investing are also being challenged, including “buy and hold.”
Many financial advisers are stuck in the old theories of equity investing, perhaps with a heavier dose of annuities thrown in. Then there is the argument that “stock avoiders” may need to see a shrink. Really? Which shrink?
So have you been avoiding stocks? If so, what is your reasoning?