Even though the US stock market is celebrating record highs- with the Nasdaq Composite, Standard & Poor’s 500 index and Dow Jones Industrial Average scoring new highs- the ordinary investors are full of gloom.
There is a good reason for this. Although the stock markets bounced up after the financial crisis in 2008, the ordinary investor began to invest only in 2013, thereby missing out on the most lucrative parts of the rally in the post crisis era. This is as the ordinary investor is unsure and afraid of stocks, this feeling due to the shrinking of their retirement equity portion by about 40 percent or even more during the space of a single year.
For a professional investor, there is no need to worry as there is no chance of retiring within the next five years with a painfully light 401(k) plan. This kind of investor could easily go for longer term views.
For the typical person on the street, the new scenario is a wholly different ballgame. Savings in this case are much smaller and the slash in the interest rates- which happened partly due to the repeated attempts of the Federal Reserve to jump start US economy, has left the fixed income investments in a condition where there are no yields.
An ordinary investor’s house represents a big share of the net worth. It has also lost value- or cannot be counted upon as a reliable source of investment. The job scenario of the investor is also less secure, as employers slash their expenses. The only regular source of income-the salary- has seen negligible increases and a bigger cost proportion of benefits cost is paid than what is received.
The ordinary investor, in order to profit from the record highs of the market, must be willing to assume more risk in the investment portfolio and buy a large number of stocks. Of course, this condition is true only if that person has an investment portfolio at all. For a majority of ordinary Americans, this is asking too much.
An extremely few number of Americans have profited from the rally in the stock market. The lion’s share of the gains has been pocketed by the wealthiest in the country. The reason is that the latter have the spare capital they could invest. Middle income families now also have less proportion of their savings exposed to the vagaries of the stock market due to the latter’s inherent risks.