You've likely heard it all before: Stocks always go up in the long run; buy and hold; ignore the day-to-day volatility; invest early to capitalize on the magic of compounding; don't let fear cloud your financial judgment.
But here's the thing -- folks aren't really buying the usual nostrums, not to mention sunny optimism, spread by stock brokers and financial advisors anymore.
Not one but two severe bear markets, the dot-com and housing bubbles, and a nagging sense the current bull market depends on the Federal Reserve's cheap money stimulus has led many investors to be cautious, according to new survey data from Ameriprise Financial. Rightly so, based on the financial realities they face.
Demographically, millennials are even more cautious than other adults, according to CNBC's All-America Economic Survey, having a poor opinion of real estate, gold and stocks vs. other age groups. Their opinion of savings accounts as the best "investment" is well above other age cohorts, and they're less likely to care about an employer's retirement benefits. Just a third believe it's a good time to invest in stocks.
But everyone else isn't exactly bulled up either: According to CNBC's data, 46 percent of all adults say it's a bad time to invest.
Volatility has trimmed the optimism. The chart above from Societe Generale shows why American's are so gun-shy: Stocks can be scary, with a history of large drawdowns. For baby boomers rapidly nearing retirement, or millennials trying to save for a downpayment on their first house, a clear-eyed look at risk tolerance would suggest something more stable, like bonds and cash.
People, to their benefit, are being cautious.
According to the Ameriprise survey data, 73 percent of respondents tend to avoid risk entirely or weigh risk very carefully when making financial decisions. Only 3 percent are identified as embracing financial risk, more than a third of which associate it with "excitement." The rest are identified as risk managers, taking a balanced approach to their financial holdings, with nearly half heavily invested in stocks.
But being too cautious brings its own risks as well. A steady decline of investment wealth because of inflation, for one, plus inadequate insurance coverage, including life, long-term care and disability.
Moreover, Ameriprise found that more active risk takers were more likely to work with financial advisors -- who should, if they're good, conduct the financial planning necessary to meet anticipated investment needs.
For older investors, especially boomers, conservatism is coming at the correct time: This cohort is simply too old, with too few working years left, to responsibly risk being overweight in equities in their retirement accounts and risk the losses of another bear market downturn. A simple rule of thumb: Subtract your age from 100 to get your simple equity allocation percentage (with the rest in cash or bonds).
Investors in or entering their prime working years, Gen Xers and millennials, should be mindful that a majority of middle-class wealth is tied up in their primary residence, according to data from the Federal Reserve: In 2013, 49 percent of people owned a retirement account (with a median value of $59,000), while 65 percent owned a home (with median equity of $170,000).
If the housing bust scared you away, which the trends on rental demand and the homeownership rate suggest is still happening, the first step is putting roots down and becoming a homeowner. Rent inflation is currently running at a 3.7 percent annual rate, while the homeownership rate is down to 64.5 percent, a level not seen since 1994. Buying will give you access to a large asset that will rise along with inflation and help put your monthly housing expense into "savings" rather than a landlord's pocket.
While the housing bust was a disaster, it was likely a once-in-a-generation-or-more experience enabled by the rise of mortgage securitization and shoddy regulatory oversight.
Periodic bear markets in stocks? Those are just a fact of life we should all be mindful of.