Even though returns from the stock market are better than those of less risky investments such as bonds over long periods of time, a recent survey by Bankrate, the North Palm Beach, Fla.-based financial content company, found that 52% of Americans do not own any stocks.
The survey found that 53% of people who don't own stocks said they don’t because of a lack of money. Only 42% of Millennials gave that reason for not entering the market, while 58% of those aged 65 and old stated they lacked the savings to invest.
The other deterrents for shying away from stocks are not surprising. Twenty-one percent of people said they lacked enough knowledge about stocks to invest, while 9% said they didn't trust brokers or advisers, 7% said the stock market is risky and 2% said they were worried about high fees.
"Stocks aren’t only for the rich, so even if you start small, investing in stocks through mutual funds or ETFs can help you build wealth over the long term," said Claes Bell, CFA, Bankrate.com banking analyst. "The key is to have an investment plan in place that aligns your investments with your risk tolerance and goals."
Millennials and Gen X-ers who do not even invest in stocks in their 401(k)s or IRAs should invest in low-cost mutual funds or use robo-advisers to manage their money.
"Only 26% of people ages 18 to 29 own stocks, and that’s a major issue,” Bell said. "They are losing years and years of potential earnings by not doing that."
Part of the problem is that many people think you need to start with a large amount of money to invest in the market, Bell said. That belief is a fallacy and starting with a small amount of money while adding to it consistently will "provide really meaningful returns," he said.
When he turned 18, Sean McCarthy opened his first Roth IRA with $2,500 he earned from a summer job, which he touts as the "best financial decision" he has made. Now 21, the social media coordinator in Camarillo, Calif., said learning the power of compounding growth is crucial.
"It would put younger investors worlds ahead of where they otherwise would be," McCarthy said. "Granted, I started when the market was bouncing back from the recession and I saw huge returns in a seemingly small amount of time. I have tried to add at least $750 to $1,000 per year in the Roth IRA since then."
The greatest advantage that investors have being in the market for a long time, said Robert Johnson, CEO of The American College of Financial Services in Bryn Mawr, Pa.