In an effort to avoid risk, Americans rely on cash as the best way to invest money not needed for more than 10 years, a trend that could aggravate the country’s low savings rate and threaten retirement options, according to a new report.
More than one-quarter of Americans prefer cash, edging out real estate (23%), shows the report by Bankrate.com, an American-based leading online publisher and aggregator of personal finance content.
The survey reveals that preference for cash is most evident among individuals with lower earnings and less education.
Respondents with six-figure incomes favour stocks (34%) and real estate (32%). People making less than that prefer cash investments (29%), real estate (23%) and precious metals (18%).
When it comes to education, the study shows that 32% of individuals with a high school degree or less choose cash, compared with 24% of those with some university education and 19% with a university degree.
This trend of choosing low-yield investments is worrisome, amplifying the country’s problem with abysmally low savings rates and jeopardizing retirement prospects, says Greg McBride, senior financial analyst with Bankrate.com.
“Hunkering down in cash investments and settling for low returns will only magnify the problem of not having a sufficient nest egg to meet longer-range financial goals such as retirement,” McBride explains.
“Other choices may not do the trick either, as real estate is not only very cash-intensive but often illiquid,” he adds. “And precious metals spit out zero cash flows, with gains solely dependent on price appreciation.”
The average money market deposit account in the United States yields just 0.11%, so a $10,000 initial investment would bring only $110.55 over a 10-year period, according to Bankrate.com. The average five-year certificate of deposit yields just 0.78%.
The study also finds that Americans feel upbeat about four of the five components of financial security—job security, control over debt, net worth and overall financial situation, with savings as the laggard.
The survey polled more than 1,000 adults in the continental United States earlier this month.
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