In the face of the ongoing COVID-19 pandemic, the U.S. stock market has staged one of the swiftest drops and quickest rebounds ever over the past year — surging to all-time highs in 2021. But despite the comeback, a new Bankrate survey shows that more than half of investors believe that the stock market is rigged against individuals.
The survey shows that 56 percent of investors either strongly agreed or somewhat agreed with the statement “The stock market is rigged against individual investors,” compared to just 41 percent of non-investors. Overall, 48 percent of American adults either somewhat or strongly agreed with the statement.
“Nearly half of Americans and a majority of individual investors have doubts about the integrity of financial markets, but the results show that disciplined, diversified, low-cost investing is rewarded over time,” says Greg McBride, CFA, Bankrate chief financial analyst.
Bankrate surveyed 2,525 American adults about the stock market and their investing habits now and before the pandemic. Below are the main findings from the survey.
- 48 percent of American adults believe the market is rigged against individual investors.
- 39 percent of adults said they had no money invested before the COVID-19 crisis or now.
- Among investors, 62 percent say they are investing about the same amount now as they were prior to the pandemic.
Nearly half of respondents think the market is rigged against individuals
Almost 48 percent of American adults admit to at least somewhat agreeing with the statement “The stock market is rigged against individual investors.” That’s broken down as follows:
- More than 18 percent strongly agreed with the statement
- More than 29 percent somewhat agreed with the statement
Being invested seemed to affect the numbers, as investors actually agreed a bit more readily than the average American to the statement. In total, nearly 56 percent agreed with it, broken down as follows:
- More than 20 percent of investors strongly agreed with the statement
- More than 35 percent of investors somewhat agreed with the statement
Among all American adults (both investors and non-investors), only 13 percent disagreed with the statement, including more than 8 percent who somewhat disagreed and almost 5 percent who strongly disagreed.
In total, 39 percent of Americans neither agreed nor disagreed with the statement.
Those who believed in a rigged market were more likely to fall in the following groups:
- Men (54 percent), compared to women at 42 percent
- Younger (55 percent for those under age 40), compared to those over 40 (43 percent)
- Educated (58 percent of college graduates), compared to 44 percent without a degree
- Higher-earning (53 percent of those earning more than $50,000 annually), compared to those earning less (45 percent)
- Investors (56 percent), compared to those not invested in the market (41 percent)
A huge portion of Americans have no stake in the stock market
The Bankrate survey revealed that more than 39 percent of American adults had no money invested in the stock market either before the pandemic or currently.
“32 percent of Americans not invested in the stock market say it is because they don’t understand stocks,” says McBride. “Being a stockholder means being a part-owner and being able to share in the future profits of the firm.”
The reasons for not participating varied markedly across the respondents, with the top answer being that they simply don’t have the money to do so:
- Nearly 56 percent of respondents said they didn’t have the money to invest
- More than 32 percent said they didn’t understand stocks
- More than 13 percent said they were comfortable with safer investments such as savings accounts and government bonds
- Almost 13 percent cited rigged markets
- About 12 percent said some other reason
- Almost 11 percent said they were worried about volatility
- More than 9 percent said they were pessimistic about the economic outlook
- More than 7 percent said they didn’t have a long time to invest
- Almost 7 percent said they didn’t know
- Nearly 2 percent said they had already accumulated enough assets
Those most likely NOT to be invested in the stock market before or now, included the following groups:
- More than 54 percent of households with incomes under $40,000
- More than 50 percent of those who have never been to college
- About 51 percent of those age 67 or older
A large majority of investors are sticking to their investing plans
Of those with investments in the market, a significant majority are sticking with their investing plan. Among investors, 62 percent said they are investing about the same amount now as they were prior to the pandemic. It was the most common response among every major demographic group.
A further 20 percent of investors are investing more now than before, while 18 percent said they were investing less than before the pandemic.
The top reasons for investing more were varied, and respondents could select more than one reason for their behavior:
- More than 37 percent cited the prospect for higher returns
- Around 35 percent said they had more money to invest
- Nearly 33 percent mentioned optimism about the economic outlook
- More than 31 percent said they were more comfortable with the risk of investing in stocks
- About 30 percent said they had a long time to invest
- About 24 percent said they were trying to make big returns quickly
- Around 14 percent cited low interest rates
- Nearly 8 percent said some other reason
- Less than 5 percent said they didn’t know
Those investing more than before the pandemic showed some distinct traits:
- Higher-earning, with those making the most ($80,000 or more) the most likely to be investing more
- Younger, with Gen Z investors typically adding more than older cohorts
In both these sub-groups, respondents were about twice as likely to be investing more than they were to be investing less.
Interestingly, those that identified as Reddit users were more than twice as likely to be investing more rather than less now compared to pre-pandemic. Reddit is where some traders connected and helped ignite a massive rise in GameStop stock in early 2021.
For investors putting less money to work than before the pandemic, the responses looked much the opposite of those investors adding more. (Note: Respondents could select more than one choice here too.)
- About 43 percent said they had less money to invest
- Almost 35 percent said they were worried about volatility
- Around 28 percent cited a pessimistic outlook for the economy
- Nearly 20 percent mentioned that the market was rigged against individual investors
- Almost 18 percent said they were more comfortable with safer investments such as savings accounts and government bonds
- More than 11 percent said they didn’t have a long time to invest
- More than 11 percent said they didn’t understand stocks
- About 7 percent cited some other reason
- More than 7 percent said they had already accumulated enough assets
- Around 4 percent said they didn’t know
3 tips for successful investing
The fact that so many Americans – and an even higher percentage of investors – think the market is rigged against individual investors is problematic. Financial experts see the stock market as one of the best ways for individuals to grow their wealth over time, and advisors routinely recommend that workers have a healthy allocation to stocks.
And it’s never been cheaper to invest in the market. Major online brokers no longer charge commissions, while the costs of mutual funds and exchange-traded funds have been falling for a couple decades. (Read our expert reviews to help determine which brokerage account may be best for you.)
“With investment costs and investment minimums at all-time lows, participating in the markets is more accessible to individuals than ever before,” says McBride.
And even the cost of a professionally managed portfolio has fallen with the emergence of robo-advisors, which can build a sophisticated plan based on your individual needs.
So how can investors use the market to their best advantage?
1. Think and act long term
When you trade in and out of the market, you’re playing Wall Street’s game, and you’re likely to underperform or even lose significant amounts of money. That’s because you’re trading against pros who have sophisticated strategies and high-powered computers to help them.
Instead, think like an owner of the business, because that’s what stock makes you. Over time the stock price should follow the financial performance of the business. As the business succeeds, the stock is likely to rise, and you won’t be trying to outguess the pros on a daily basis.
That’s why experts and many pros swear by a long-term buy-and-hold mentality. They think like business owners – real investors – rather than short-term traders.
2. Invest passively
Passive investing beats most active investing, and over time passive investing beats more than 90 percent of professional investors. Passive investing means using an index fund rather than using an actively managed fund or picking stocks yourself.
“Rather than trying to select individual stocks, those new to investing are particularly well-served by choosing a broad stock market index fund where your money is spread across hundreds or even thousands of companies, reducing the risk of any one company underperforming,” says McBride.
Investing passively in a diversified index fund such as one based on the Standard Poor’s 500 may help you achieve higher returns than moving in and out of stocks. Historically the S&P 500 has returned about 10 percent annually, though it can vary significantly in any single year.
3. Have an emergency fund
What does an emergency fund have to do with investing well? In fact, it’s really important to helping you stick to your long-term plan. With an emergency fund in place – experts recommend at least six months’ worth of expenses – you can ride out the recessions and the bear markets without having to tap your investments when they’re the most likely to be cheap.
So an emergency fund allows you to stay invested when you most need to stay invested. An emergency fund may even help you invest more when stocks are likely to be cheapest, because you can funnel incoming cash to the market rather than have to replenish an emergency fund.
This study was conducted for Bankrate via online interview by YouGov Plc. Interviews were conducted from Feb. 24-26, 2021 among a sample of 2,525 adults. Data are weighted and are intended to be representative of all U.S. adults, and therefore are subject to statistical errors typically associated with sample-based information.