Savers Standing Firm in the Face of a Shaky Market

A recent poll conducted jointly by MoneyRates.com and GetRichSlowly.org found the investment preferences of respondents little changed despite an increase in market volatility through late spring 2010. Examining possible reasons why reveals some things about the broader investment environment--and about investor behavior.

The poll asked, "Where are you investing most of your savings today?" The responses, listed in order of popularity, were as follows:

1. Savings account or checking account: 35%
2. Stocks: 22%
3. Diversified portfolio: 20%
4. What savings?: 16%
5. Fixed-income investments/bonds: 6%

These results show little change since the last time the two sites conducted this same online poll roughly three months ago. Since that time, the Dow Jones Industrial Average rose to a new yearly high and then plunged by 1,000 points in just a few weeks. Several days saw losses of 100 points or more, and there were even a handful of days with losses of at least 300 points.

So, in the wake of all this turmoil, why was there no significant change in the investment choices of poll respondents? The possible reasons why are examined below.

• Alternatives to stocks are not very compelling. When things get rough for stocks, the common instinct is to flee toward safer investments--but in the current environment, those alternatives to the stock market are not very attractive. According to the Federal Deposit Insurance Corporation (FDIC), savings account interest rates are averaging 0.20%, while money market rates are at an average of 0.29%. You can find higher savings account rates and money market rates if you shop around, but most likely you will find yourself earning less than 2%. Even long-term Treasury bonds are yielding barely 4%. In short, if you are investing to beat inflation and build for the future, stocks may still seem like the only game in town.
• Poll respondents were already conservatively invested. Responses showing stocks and diversified portfolios as the primary investment vehicles already totalled less than 50% when the last poll was taken, so this audience may already have been expecting trouble.
• Investors don't have enough savings to make long-term investments. Sixteen percent of poll respondents report having no savings, so there are also probably many respondents who have only a modest amount of money saved. People who haven't built past the emergency fund phase of savings have less need for anything beyond savings or money market accounts.
• The MoneyRates.com and GetRichSlowly.org audiences are more financially savvy than the average investor. These sites are both dedicated to consumer information and financial literacy. An audience that seeks that kind of content is probably less likely to respond emotionally to short-term market fluctuations and hold pat on long-term goals. Investors who take the long view towards savings are less likely to make frequent changes in their investment choices. (For more on what people tend to do when the chips are down, read "How Do People React When the Stock Market Goes Crazy?")

This is a poll that MoneyRates.com and GetRichSlowly.org plan to repeat periodically, to get a handle on how investor choices change over time. It is possible that continued volatility will chase more investors into conservative investments. On the other hand, it's also possible that an informed audience will see further declines in the market as a buying opportunity, which would mean more respondents choosing diversified portfolios or stocks as their primary investment vehicles.

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