Many Investors Don’t Know The Market is Rising

According to a new poll from Gallup, “Fewer than one in 10 aware that stocks averaged 30% increase in 2013.” The ignorance is demonstrated by the investment decisions many of these people make. Gallup reports:

Amid a strong bull market that drove the S&P 500 up 30% in 2013 and has continued to produce gains, fewer than half of U.S. investors — 41% — say that if given an additional $10,000 to save or invest, they would put it in the stock market. Just over a third, 36%, would hold it in cash, while 20% say they would purchase a CD with it.

Cash does not yield any returns, and CDs do not do much better.

The reason for the trend is linked mostly to anxiety, which in turn has blocked many people from improving their financial standing considerably. In the same Gallup report researchers write:

The cautiousness seen in investors’ choices of where to put a spare $10,000 is mirrored in a separate question asking investors how they feel about investing their own money in the market. Nearly half describe themselves as extremely or somewhat nervous about doing this; another 38% are a little nervous, while just 16% are not nervous at all.

Their nervousness is driven in large part, Gallup reports, because, once again, many people have no idea how much the market surged last year. The research company does not say exactly why all of these people have not followed the movement of the market. The trend is on the front pages of newspapers and websites with great frequency.

Gallup concludes the lack of knowledge about huge market improvements has hurt investor returns. Of course it has, if people are putting money into CDs. Gallup’s summary of the effects:

This raises important questions about investors’ ability to accurately assess market risk, and therefore to take advantage of the market to grow their wealth. It is exemplified by the finding that so many investors would opt to park an additional $10,000 in cash or CDs — where they are virtually guaranteed no meaningful growth — rather than invest it in stocks. Investing in stocks is certainly not appropriate for everyone, in every circumstance; but making wise financial decisions requires some basic market knowledge. The good news is that investors by and large recognize that their financial knowledge is limited, and believe they need professional advice.

Professional advance they apparently have not been seeking.