With the Great Recession just a few years behind us, Americans are still spooked by investing, despite the continuing stock market rally.
According to a new Nationwide Financial survey of potential investors with at least $100,000 in investible assets, 83% fear another financial crisis and 62% are scared of investing in the stock market. That is more than the 58% who fear death and the 57% who fear public speaking. The only common fear that evokes similar distress is skydiving (81%).
“We were pretty surprised that people are more afraid of investing than public speaking and dying,” said Michael Spangler, president of Nationwide Funds, Nationwide Financial's mutual fund business. “There doesn't seem to be much understanding of the recovery. There was a double digit return on the equity markets in 2012.”
“Backing away, not taking part in the markets and just living in fear is not a solution,” Mr. Spangler said.
Steven Kolinksy, founder and chairman of Kolinsky Wealth Management, thinks these fears are wildly overblown and that a strong dose of reality would stem the anxiety.
“Things have gotten a lot better,” he said, “yet the average investor has no idea that the S&P 500 is up 20% on the year.”
The problem, as Mr. Kolinsky sees it, is media hype.
“We are in a world of media,” he said. “As good as media can be, it makes people overreact in both good and bad markets.”
Mr. Spangler said much of the knowledge gap especially among younger investors, is from people doing their own research rather than using professionals.
Millennials and Generation Xers are more likely to use websites as their primary financial planning resource (58% and 48%, respectively) as opposed to using an adviser (51% and 43%). Retirees and high-net-worth investors, by contrast, are most likely to use a financial adviser as their primary financial planning resource (78% and 61%, respectively).
“This generation educates itself using online tools, customer reviews — and that's great,” said Mr. Spangler. “But those are sound bites. They need professional help.”
“This group is seeing an acute level of geopolitical unrest and these younger investors just aren't used to this level of distress,” he said. “Political upheaval in Egypt. Economic upheaval in Europe. Add that to lingering effects of the crisis and slow recovery in employment. It's really a multitude of factors.”
Millenials and Gen Xers were also more afraid than others that they won't be able to retire (66% and 65%, respectively), compared with 57% of pre-retirees.
“There's no argument that we're in a retirement crisis,” said Mr. Spangler.
Mr. Kolinsky and Mr. Spangler agreed that the way investors receive financial news is as significant as the information itself.
“You just can't get all of your information in 140-character intervals,” Mr. Spangler said.