Despite being badly spooked by the 2008-09 financial crisis, Americans have retained their faith in the stock market.
That's one key lesson in the latest IBD/TIPP Economic Optimism Index poll.
"Given what people went through in the downturn, I expected more people to shy away from stocks," said Raghavan Mayur, president of TIPP, a unit of TechnoMetrica Market Intelligence, IBD's polling partner. "But it's not so. They're investing less aggressively. But they're still investing with stocks."
The survey results show those mixed feelings.
• Among investors who took at least some money out of the market in response to the market meltdown, 66% are waiting to put money back in.
Apparently, many of those investors are not convinced the current rally is for real, Mayur says.
• Likewise, 67% said they have become less aggressive investors. But instead of abandoning stocks totally, they have shifted somewhat to more conservative, higher-yielding stocks rather than investing mainly in growth stocks.
• Similarly, 58% of people polled said that in recent years they have begun to invest less in individual stocks and more in mutual funds.
Here too, they are seeking professional management and the benefits of diversification rather than turning their backs on stocks.
• Defensive measures have a limit. While 43% said they are investing less in stocks than in other assets such as bonds, real estate and precious metals, a majority — 53% — said they are not cutting back on stocks in favor of other assets.
"People recognize that stocks grow better than bonds over the long run," Mayur said. "And they know they can hurt their long-term returns by shying away from stocks too much."
• Another sign that people don't want to get too conservative with their investments was the broad commitment they expressed to buy-and-hold investing.
Seventy-seven percent of people surveyed said they did not pull all or even most of their money from the stock market as a result of the 2008-09 financial crisis.
IBD/TIPP polled 915 adults March 25-30.
That's a smart approach to investing, says T. Rowe Price financial adviser Judith Ward.
"The more you keep emotions out of investing, the better off you'll be in the long run," Ward said. "Many people who did move money out during the crisis have not seen gains as big as those who stayed in the market. They've missed some of the early market move up."
Jitters remain despite the ongoing market rally. The caution is fueled by the slow pace of economic growth and jobs gains.
A majority of the people polled feel that the U.S. is in a recession. And 20% of households have at least one person looking for a full-time job.
About 30% of those polled are somewhat to very concerned that they or someone in their family will be laid off within the next 12 months.
"Those are signs of lingering after-effects of the downturn," Mayur said.
Preparing For The Future
So how should people prepare for the next big market tumble?
"Invest in an asset allocation that's right for you, based on your age and goals," Ward said. "If you're close to retirement, you may not want to be 100% in stocks."
A more balanced portfolio will likely lose less than the broad stock market in a pullback.
Knowing that your portfolio is already positioned to absorb shocks better than a 100%-stock portfolio should make it easier to stay invested and keep contributing.
"Even if the market goes down, your dollars will buy more shares," Ward said. "When the market comes back, you'll be in even better shape."