Stocks Are at All-Time Highs. So Why Are Americans Afraid to Invest?

A new survey of investors found that, despite sky-high market valuations, Americans are decidedly leery about putting their money into the stock market right now. Only 1 in 4 consider the current environment a good time to invest — a whopping drop of nine percentage points from the 34% who said the same just three months earlier.

The survey, conducted by the Allianz Center for the Future of Retirement, also found that nearly 2 in 3 respondents told surveyors they expect a major recession in the near future.

The last time investor sentiment was this downbeat was four years ago, when the stock and bond markets were tumbling simultaneously in response to inflation that had spiked to four-decade highs.

By comparison, today’s economy is expanding. The unemployment rate is low, and interest rates, while higher than their pandemic-era trough, remain below the historical average. While inflation remains elevated, consumer spending continues to chug along.

“I don’t know when I've seen numbers this skewed before,” says Kelly LaVigne, vice president of consumer insights at Allianz Life.

The seeming contradiction between high-flying asset prices and anxious investors comes down to a fear of volatility and an expectation that the broader economy is overdue for a reversal. Half of survey respondents said they have already changed their investments in a bid to make them less vulnerable to loss in the event of a downturn.

That’s probably a mistake, says Scott Cole, founder and president of Cole Financial Planning and Wealth Management. “There’s a reason why [stocks] are hitting highs. You really should not be afraid of that,” he advises.

But he adds that the impulse is understandable: “I think there is a human instinct to think that it’s not going to go on forever.”

Wall Street wealth confronts Main Street woes

All of the headlines about AI fueling a bubble and triggering layoffs have made Americans skeptical about the market’s buoyancy, Cole says. What’s more, boom times on Wall Street don’t reflect the reality of high grocery and gas prices pinching household budgets.

“That disconnect makes people think that… therefore, it must be a house of cards,” he observes.

“Fear is the common denominator,” says Rick Kahler, founder of Kahler Financial Group and a certified financial therapist. “This market will decline and a recession will happen; we just don’t know when,” he writes in an email to Money.

A period of volatility is a good opportunity to reflect on your goals and reassess your allocation to make sure it still supports those goals, Kahler advises.

“For those who are legitimately rethinking their permanent risk exposure due to their overall financial planning goals, this would be a great time to reduce market exposure,” he says.

People hoping to retire soon or on fixed incomes should be especially sure to have some assets that aren’t exposed to stocks’ volatility.

“If you're going to need some liquidity in the next year or two, that shouldn't be in the market anyway,” Cole says. Keeping part of your portfolio in instruments like CDs or Treasurys will decrease the likelihood that you’ll have to liquidate portfolio positions at a loss.

But for younger investors, staying the course is the way to go. “Timing market tops and bottoms rarely works out in the long run,” Kahler points out. Even financial pros have a shaky track record when it comes to calling peaks and troughs, which is why a long-term plan that takes volatility into account is so important.

“Try to ignore both the rhetoric and your feelings,” Cole says. “[This] is why investing is hard.”