The Charging Bull statue at Bowling Green in New York’s financial district.
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Americans feel less comfortable investing in the stock market for the long term, even though it is one of the best ways to move forward.
In 2021, 28% of Americans said real estate was their preferred way to invest over a period of 10 years or more, according to a Bankrate survey. About a quarter said cash investments, such as savings accounts or CDs, are their main long-term investment method, and only 16% said they would choose the stock market, according to the site. Financial web.
This is a big departure from the comfort of investing in the stock market. A year earlier, markets were at the top of the list with some 28% of Americans choosing it as their preferred investment.
“To see that when the market performed as well as it did last year, it was surprising,” said Greg McBride, chief financial analyst at Bankrate.
The pandemic may have had an impact on how investors plan to invest and made more Americans aware of having cash on hand for emergencies.
“Unfortunately, investors tend to look for performance,” McBride said. “This is often the pattern we see. Building long term wealth really takes the opposite tack.”
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Investing in the stock market with discipline and patience for decades is usually the best way to build wealth, according to financial experts.
“What we’ve seen over the long term, for long holding periods, is that stock market returns have generally outperformed other asset classes,” said Roger Ma, certified financial planner at lifelaidout and author of “Work Your Money, Not Your Life.
For many people, their first investments in stocks are through an employer-sponsored retirement plan, such as a 401 (k) plan. But, even for those who wish to invest outside of these accounts, it is relatively straightforward to get started with several online brokerages that offer no fees.
“It has never been easier or cheaper for individual investors to participate in the stock market in a diverse way,” said McBride.
Managing a retirement portfolio or other long-term equity investments can also be fairly easy, Ma said.
“You don’t need to know what to invest in, when to buy it and when to sell it,” he said. “It can be as simple as buying a single fund portfolio or a target date fund that is getting closer to when you want to retire.”
And, the makeup seen in the stock market can multiply what you save exponentially. Lauryn Williams, CFP and founder of Worth Winning, describes investing in the stock market as stepping on a conveyor belt at the airport.
“You can walk, and you should always walk, most people walk when they get on the treadmill,” Williams said. “You still keep saving, but the treadmill is going to help you get there faster.”
Even if the market collapses or stagnates in the months and years to come, experts recommend staying the course and being more selective with the companies you invest in.
“As far as my long-term outlook goes, to be honest with you stocks are the best place to be, but I just wouldn’t expect much from major averages,” billionaire investor Leon Cooperman said. at the CNBC Financial Advisors Summit. “I am ready to be in this kind of environment where I have to choose my path to success.”
Actions against cash
In the long run, cash is generally not a good investment for building wealth. It is much more useful to have money for something like an emergency savings fund.
“Cash is great for short-term needs because there is no volatility,” McBride said. “But the lack of return means that not only will it not create your wealth over long periods of time, it will erode it.”
This is due to inflation, or goods and services become more expensive over time. If you are just saving money in cash and not seeing high returns, you will have to save more and more to buy the same things as inflation rises.
After the coronavirus pandemic, this may be a priority for Americans as inflation rises and pushes up prices.
One of the best ways to fight inflation is to invest in assets that will give you a higher rate of return, such as the stock market. In return for the risk of volatility, investors are rewarded with higher returns.
“Your biggest long-term risk is investing too prudently,” McBride said.
When real estate makes sense
Of course, owning property is also a great way to build wealth, especially one that can be passed on to future generations.
Right now, people may be turning to real estate because of soaring prices that added value to homes bought years ago.
“Primary residences have made many millionaires,” McBride said.
But there is a much higher barrier to entry into real estate ownership than investing in the stock market, and much higher buying and selling costs that can eat away at overall returns. This means that for those who are just starting out, it usually makes more sense to start with a basic stock market investment and plan to purchase a property later.
“It’s easier to get into the stock market because you don’t necessarily need a lot of money for a down payment,” Ma said.
He added that if you want real estate exposure, this can also be achieved with a balanced portfolio by investing in real estate companies or real estate investment trusts.
The stock market will also offer people a much better diversity of investments than real estate, which is a way to protect assets for decades of saving and investing.
“Diversity is having your hand in different pools so that if one thing doesn’t work something else is likely to work and overall you end up winning,” said Williams.
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