July 22, 2016 – Retail investors are showing signs they have lost faith in U.S. stocks, and that real estate and cash are the most popular investments, a Bankrate survey shows.
Out of 1,000 adults asked what they would do with their money if they didn’t need it for 10 years, a quarter said they would buy real estate, 23 percent said they would keep it in cash.
Only 16 percent said they would put it into stocks, which was the same percentage as those who would choose to invest money in gold or precious metals, a CNBC report said.
“As someone who has lived and breathed stocks for most of my life, this is a horrendous finding. But it’s not surprising,” said CNBC’s Mad Money host Jim Cramer.
Waves of mistrust have caused investors to leave the market, although for many years prior, stocks were regarded as the mainstay of a retirement account, he said.
Investor fears rose as tech stocks plunged during the dotcom crash of 2000. That was followed by The Great Recession, the 2010 flash crash, and in 2011 a decline prompted by Europe. Swindlers such as Bernie Madoff and banks that didn’t play by the rules caused some investors to lose confidence.
Although real estate is perceived as reliable, it too lost a great deal of value in the housing collapse just seven years ago. As for cash, a 10-year time horizon sitting in a savings account will lose money versus the rate of inflation, he said.
“If you can find stocks of high-quality companies with good balance sheets that pay strong dividends and have a bit of growth, I think you could crush the returns of those other asset classes over a 10-year period, provided you reinvest the dividends,” Cramer said.
Another option Cramer recommended is to put money into an index fund, as it can be held for a long-period of time and has low costs. However, he prefers a hybrid model. That means for a 10-year time horizon put the first 10,000 dollars in savings into an index fund.
After that, he said to allocate at least every 1 dollar of every 10 dollars saved to picking individual stocks that include a mixture of high growth, slow growth and some income.
“The market may not be the only gain in town, but in the end, stocks are a crucial part of your savings, and I am urging you not to abandon them completely,” Cramer said.