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Don’t Become as Complacent as These Investors

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Does market volatility provide investors with no-brainer opportunities?

That’s what most people seem to think based on a new survey that finds nearly half of US adults say market volatility gives them the chance to make an easy profit.

Given the recent swings in the stock market, the survey, commissioned by the American Institute of Certified Public Accountants (AICPA), suggests that many investors, especially younger ones, are dangerously complacent about their investments and heedless of the fact that, although dips in stock prices can provide an opportunity, market volatility often entails steep losses.

The younger investors are, the less concerned they seem to be about market swings. Fully 62% of millennials (currently age 20 to 37) said that short-term buying and selling during volatile markets provides a chance for quick gains. What they may not grasp is that such in-and-out trading can result in steep losses instead.

For Gen Xers, or those aged 38 to 53, the percentage who say such high-risk trading is potentially profitable is less, but still 55%.

In the case of baby boomers, those aged 54 to 72, just 37% of them agreed that market swings provide an opportunity for quick trading gains.

“Many millennials have only experienced a bull market as adults and may not be as aware of the dangerous downturns that are a natural part of the market cycle,” the AICPA says.

The AICPA noted that in the first quarter of 2018, shortly before the survey was conducted, the Standard & Poor’s 500 stock index experienced swings of 1% on 23 days—more than three times the number in all of 2017—but nevertheless, 37% of those polled characterized the financial markets as “stable” for the quarter. So there appears to be a fair amount of either blindness or just wishful thinking among respondents.

If Americans are blasé about the market risks they face, it certainly isn’t because they have thoroughly analyzed their portfolios. Of those surveyed who are involved in household investment decisions, 28% said they never research strategies or opportunities.

That’s ironic given that the top consideration for 36% of those decision makers was a steady annual return…and the top consideration for another 35% of them was to understand investment fundamentals, including risk.

There did seem to be more realism about one particular type of investment—crypto currencies, some of which have lost more than half their value from their peaks in the past year. Only 5% of respondents said they do invest or plan to invest in them.

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Source: Study by the American Institute of Certified Public Accountants (AICPA) of more than 1,000 adults. Date: September 4, 2018 Publication: Bottom Line Personal
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