More Than Half of Americans Still Aren’t Investing: What’s Holding Them Back?

American stock market falling concept stock photo
marketlan / iStock.com

A new year-in-review study from GOBankingRates surveyed more than 1,000 American adults. One of the questions asked how the respondents’ stocks had fared during this year’s bear market. 

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The answers offered a striking revelation. More than half of the study’s respondents — around 52% — reported not investing in stocks at all. 

To find out more about why a majority of Americans are sitting on the sidelines instead of growing their money in the stock market, GOBankingRates consulted various experts to shed some light on the subject

Newer Investors Are Still Processing the Shock of 2022

The March 2020 market crash ended a historic 11-year stock rally — but the downturn didn’t last long. Despite the pandemic, stocks bounced back to their former value by the end of summer and tore off on a brand-new bull run. The takeaway for novices was that the stock market is a wealth-generating machine that can’t lose for long, even in the worst of storms. 

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“The 2020 bull run captivated lots of beginner investors during the early stages of the pandemic,” said Andrew Gonzales, co-founder and president of BusinessLoans.com. “Stocks were climbing on artificial valuations, and crypto assets were fueled by endless hype and a fear of missing out.”

Then, at the start of 2022, it all came crashing down. 

“Stock market indexes lost around 25% of their value over the year, which had a reverberating effect on current and prospective investors,” Gonzales said. 

Newer investors who hadn’t weathered previous storms were confronted for the first time with realities that veterans knew all along: Stock investing is inherently risky, people rarely beat the market, and volatile emerging assets like crypto can implode without warning.

Some of the 52% on the sidelines likely pulled out when the going got tough and are still absorbing the hard lessons they learned — but Gonzales is optimistic that they’ll return better prepared for the rigors of the market.

“New investors can develop a sensible and nuanced understanding of what the markets are truly capable of, and at what rates their portfolios can grow,” he said. “This, in itself, will soon trigger a more sustainable influx of well-read investors who are ready to start their journey.” 

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For Many Families, Inflation Has Left Little To Invest

Throughout 2022, fast-rising prices reduced household buying power and forced many families to find dollars wherever they could — including from what would have been their investment budgets.

“When a majority of Americans are living paycheck to paycheck, it is no surprise that they are not investing,” said Jay Zigmont, Ph.D., CFP, and founder of financial planning firm Childfree Wealth. “When you don’t have enough money to cover basic needs, investing is a pipe dream.”

Those who have never experienced the grind of poverty might point out that with fractional-share investing, anyone can buy stocks with just a few bucks. 

But, for many, a few bucks just aren’t there.

“Keep in mind that people who were living paycheck to paycheck prior to inflation are now having to live off of their savings or debt,” Zigmont said.

Those Who Have Money Might Feel Like They Don’t Have Time

With interest rates rising, it’s easy for people to stick their money in a CD or savings account and hope the Fed keeps raising rates. But those same people might believe that stock investing requires lots of time and energy when they don’t have either to spare. 

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“Lack of time and knowledge is one of the major reasons holding many people back from investing,” said Gabriel Lalonde, CEO of MDL Financial Group Ltd. “Most people have the misconception that active investing requires a considerable amount of time and effort. This misconception makes most people believe that the little time they have to spare in a day is not enough to start investing actively.”

The truth is that anyone can put their money in play with simple, cheap index funds or ETFs while they learn more about investing. 

They’re Intimidated or Overwhelmed

If you’re new to investing, just the word itself can stir anxiety. Those who profit from the financial markets make investing more confusing than it needs to be so they can sell the service of guiding you through it all.

“The investing world is extremely inaccessible,” said James Beckett, a writer from the passive investing site Tiny High. “It is full of jargon, packaged products and hidden fees. Moreover, our education system is inadequate at preparing us for a world dominated by money. We are given little guidance on how to save, invest and build wealth for a happy retirement. Therefore, we have little hope of understanding the complexity of financial products, causing us to avoid investing altogether.” 

Far More Women Than Men Avoid Stocks

One of the study’s most startling revelations was that only around four in 10 men said they didn’t invest in stocks, compared to six in 10 women. 

Several experts cited pay disparity as a potential explanation for this enormous stock investing gender gap. One expert argued that women are more likely to be primary or sole-custody caregivers, which requires more available cash for unexpected costs that can’t be invested in stocks.

Eva Tian, growth strategy manager at the real estate investment platform Mynd, is sure there’s no one culprit and that many factors are at play, “from financial security to social and gender roles.” 

Tian also suggested that, generally speaking, “women may be more risk-averse when it comes to investing.” 

If that’s the case, then perhaps women are more likely to forgo stocks for safer investments like bonds. 

Tian certainly isn’t the first to suggest this theory. 

The Harvard Business Review (HBR) says, “There’s solid research showing that women are more risk-averse than men when it comes to picking stocks, investing in venture capital, or making acquisitions.”

However, HBR’s own research shows that professional investment teams with higher concentrations of women are more likely to make risky plays than those dominated by men.

Either way, Tian’s initial assessment is undoubtedly accurate: It’s a complicated issue with many variables. 

She said, “Understanding and addressing these factors is key to increasing women’s engagement in investing and helping them achieve financial security and success.” 

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About the Author

Andrew Lisa has been writing professionally since 2001. An award-winning writer, Andrew was formerly one of the youngest nationally distributed columnists for the largest newspaper syndicate in the country, the Gannett News Service. He worked as the business section editor for amNewYork, the most widely distributed newspaper in Manhattan, and worked as a copy editor for TheStreet.com, a financial publication in the heart of Wall Street's investment community in New York City.
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