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Does market uncertainty really affect whether people save for retirement?
The media warned those saving for retirement not to react to last week's market fluctuations. A survey released last week by Charles Schwab indicates, however, that it's other factors not investor confidence that affect how people save. - photo by Daniel Bendtsen
When the Dow Jones Industrial Average dropped 1,000 points last Monday, news publications were awash with warnings for investors to steady their nerves.

Ron Lieber of The New York Times had a simple message to investors: dont do a thing even if youre nearing retirement.

I know too many 70-year-olds who sold all of their stocks in 2009 and are healthy enough to live to 100. Theyd be going on a lot more vacations now and be worrying less about long-term care if they had held firm, Lieber wrote.

But theres also reason to believe the average American isnt as excitable about fluctuations as are the traders on the stock exchange's floor.

The major drop Monday morning involved mostly stop-loss sales from large-money investors, according to The Wall Street Journal, and Trib Total Media reported Tuesday that small-scale investors are less reactionary than these fluctuations might indicate.

J.J. Kinahan, chief market strategist for TD Ameritrade, told the Pittsburgh-based publication that Mondays drop was driven not by middle-income Americans, but by fund managers controlling large swaths of money.

You dont see moves this big without it being the big money thats moving, he said.

After 2008, Americans were saturated with financial hindsight on how irresponsible borrowing played a role in first major downturn of this millennium. But the fallout may have taught us another key lesson that overreaction to financial markets may only exacerbate our problems.

Even though stock prices have been on a steady decline since July, the Consumer Confidence Index jumped in August and jumped much higher than expectations.

But although small-scale investors may not have rushed to withdraw their savings after Monday, there are data that show Americans are still hesitant to invest in the wake of the Great Recession.

According to Gallup polling, 65 percent of Americans had invested in the stock market before the recession hit. Even though the Dow was up 30 percent this year over its peak before the recession, many have pulled out of the markets since 2008, and now only 55 percent say theyre invested actually a smaller percentage than five years ago.

A survey released this week by brokerage Charles Schwab indicates, however, that distrust of the stock market isnt a major deterrent for potential investors.

Their survey of 401(k) participants found that while Americans place a high value on retirement savings, many dont invest as much as theyd like because theyre confused by the system. More than half didnt feel confident to make correct 401(k) decisions on their own.

Lifestyle is also a major reason Americans choose to spend the money they're making. Thirty-five percent of those surveyed by Schwab said they were unwilling to give up things like vacations or dinners out in order to save.

And while those who are saving for retirement are well-trained not to overreact, market instability can still lead to mental stress for those who look at their 401(k) in times of uncertainty.

Jerry Davis, a sociologist at the University of Michigan, told Al Jazeera English that Americans worry largely because they overestimate how these fluctuations affect their assets.

Even though they dont have that much invested, it really changes the way, symbolically, they think about themselves, Davis said. People see themselves as investors even though their home or their value as laborers have a much bigger impact on their net present value.
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