Most investors have chased after hot stocks or sold off after a bottom. However, the more egregious habit would be to sit out of investing entirely. Instead, investors can implement a trend following strategy to help navigate markets and exchange traded funds.
According to Bankrate.com research, almost three-quarters of Americans indicate they are not “more inclined to invest in the stock market right now,” reports Chuck Jaffe for MaketWatch.
The numbers match up across all ages and income groups from surveys done in 2012 and 2013, when 76% of Americans indicated they were not going to increase their stock market exposure back then.
While investors are not falling into their classic poor behavior of buying high and selling low, most Americans have missed out on a low interest rate environment that is fueling a stock market rally. Instead, most are sticking to savings accounts and cash. [Robust Demand Lifts Treasury ETFs]
“Individual investors, what money they are squirreling away is overwhelmingly dedicated to those liquid investments; they’re looking to keep money in a savings account or a money-market account which is indicative of just how nervous people are,” Greg McBride, chief analyst at Bankrate.com, said in the article. “Individual investors are not warming to the stock market…despite those record-low yields on cash and fixed-income and despite a record high in the stock market.”
By staying in cash, investors counter principal risk, or the chance they lose money in a market decline. However, investors could face purchasing-power risk, or the risk of losing out to inflation, and longevity risk where money could run out before your lifetime.