Americans are still shying away from stocks, an attempt to be more secure in regard to their financial security, new numbers indicate, but their view on investing in the stock market remains tepid at best.
According to Bankrate's Financial Security Index, which began tracking the financial views of Americans in February 2011, the sentiment is at the highest level ever. Granted, the index has only been around for just over one year, but the trend of higher readings could bode well for the economy.
As confidence builds in Americans, where the economy is concerned, it will give consumers the green light to go out and spend. And with the consumer making up approximately 70 percent of the United States economy, spending is an integral part of a continued economic recovery.
Stock Shy - Sheep Get Slaughtered
The one troubling aspect of the report shows that 76 percent of Americans aren't more inclined to invest in the stock market. Not even savings rates near zero are enough to persuade investors to consider investing in stocks.
I have several views on this number, some negative and some positive. The one major issue I have is that investors are parking their money in cash that's not making enough interest to keep up with average inflation -- the S&P 500 hit a 4-year high earlier this month. The stock market is up over 25 percent in the last six months and has more than doubled from the March 2009 low. If you are an investor that continues to doubt the bull market in stocks, it's time you wake up and smell the profits.
The fact that so many Americans remain out of the stock market, or at a minimum underinvested, is a positive sign for the investors who do own stocks. Once the masses decided it's all clear, and move the majority of their money into stocks, it'll be that much closer to a new top for the bull market. Why's this? Well, as Gordon Gekko so famously said in the movie Wall Street, sheep get slaughtered. Most investors act as sheep and move with the herd. Unfortunately, the herd rarely makes money in the stock market. This is another situation where you want to be a leader, not a follower.
Investors in the market now are the leaders, and they'll benefit from the mass inflow of money from the sheep as the stock market continues to pierce new highs. The new money will inflate stock prices to even higher levels and increase the size of portfolios for the investors that were willing to get away from the herd.
Considering the last decade, it is easy to understand why investors are wary of the stock market. They have had to deal with the technology bubble in the early 2000s, followed by the financial collapse in 2008, and most recently the sell-off last year triggered by the current European debt situation. The volatile swings in the value of a portfolio could put fear in anyone. However, being scornful doesn't mean you should give up completely on the largest wealth creator in the last century -- the stock market.
Next week, I'll lay out the statistics that suggest investors should be in the stock market today. In my opinion, if you want to be in the stock market and have a long enough time on the horizon, there's no reason not to own stocks this very moment. Check back next week for the numbers you need to know.
Matt McCall is founder and president of Penn Financial Group, an investment advisory firm that specializes in ETFs and individual portfolio management. Matt is the author of two investment books: The Swing Trader's Bible: Strategies to Profit from Market Volatility and The Next Great Bull Market: How to Pick Winning Stocks and Sectors in the New Global Economy. He is a regular host on the Fox News Channel. His credits include: The Wall Street Journal, CNBC, Business Week, Bloomberg TV, and Investor's Business Daily, to name a few. You can check out his Web site here: www.MatthewDMcCall.com