Americans prefer cash to save for long-term goals
Ask the average person for the best investment for a longterm goal, and you’ll get an answer that will stupefy a financial planner: cash.
Cash was king for long-term investment goals, according to a survey by Bankrate.com — despite the fact that the average money market mutual fund yields 0.01 percent, and the average five-year bank CD yields 0.78 percent.
More than a quarter — 26 percent — of those asked said they favor cash as the best long-term investment, the Bankrate.com survey said. Other favorites: real estate, 23 percent; gold, 16 percent; and bonds, 8 percent. Just 14 percent chose stocks, a sign of how deeply scarred the 2007-2009 bear market left investors.
“It highlights how riskaverse investors continue to be five years after the financial crisis,” says Greg McBride, senior financial analyst for Bankrate.com.
The survey also shows investors’ continuing fondness for real estate, despite the real estate collapse. “Real estate is cash-intensive, illiquid, and nearly impossible for the aver- age person to diversify,” McBride says. “Memories of the real estate bubble deflating seem to have dissipated very quickly.”
The average bank money market deposit account pays 0.11 percent — so a 10-year, $10,000 investment would gain only $110.
Investors’ positive impres-
sion of gold is equally puzzling, since gold has fallen nearly 43 percent since its 2011 high of $1,895 per ounce. “It’s an asset class that doesn’t produce any income or dividends,” McBride says. Despite its downturn, however, gold has soared 224 percent the past 10 years, according to Morningstar.
Stocks are typically better at producing good long-term returns. Large-company stocks have produced average annual gains of 9.9 percent since 1926, says Morningstar, and bonds have gained 5.3 percent. Cash has averaged a 3.5 percent return. (Inflation- adjusted returns over the same time period: 6.8 percent for stocks, 2.3 percent for bonds, and 0.5 percent for cash.)
The survey also has more dire implications, McBride says. “If you combine the anemic rate at which people save and low returns from cash investments, it threatens to leave millions well short of where they need to be for long-term goals, such as retirement and college education.”