By 2007 and 2008, the housing market had exhausted itself, and triggered a severe decline in the housing sector. Investors once again flocked to the door, only this time to get out.
Moral of the story: Investors tend to think in packs based on market sentiment.
To highlight this phenomenon, caution still lingers among investors, four years after the 2008 financial crisis, according to a recent survey by T. Rowe Price.
Thirty-seven percent of investors say they are now refraining from investing in stocks because of current economic or market conditions, and as many as 76% of investors say they are only somewhat or not at all willing to take on more risk to obtain a potentially higher yield.
“The lack of faith in equities, even among long-term investors, is troubling,” said Stuart Ritter, senior financial planner with T. Rowe Price. “Historically, stocks have provided more long-term growth opportunities than bonds, short-term investments, or other vehicles that are generally considered to be more conservative.”
The online survey, conducted in August by Harris Interactive, a custom market research firm, for T. Rowe Price, drew from 850 adults in the United States aged 21-50 with at least one investment account.
While 61% of respondents believe that investing in stocks is very important or important to helping them achieve their retirement savings goals, the crisis appears to have ushered in a new era of financial prudence. With respect to their personal savings, 81% of investors say they are saving about the same or more than they were before 2008.
“Investors have experienced a lot of market turbulence and tough economic times over the last several years, so it’s understandable from an emotional perspective that many of them – including younger investors – might be reluctant to invest in stocks,” said Mr. Ritter. “[But] for investors with a long time horizon and enough tolerance for volatility, stocks have always been the best asset class for growth potential and for staying ahead of inflation.”
