Market Overview

Nearly Half of Americans Say Volatile Markets Are an Easy Way to Make a Profit: AICPA Survey

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  • One-third of Americans characterized the financial markets during the
    first few months of 2018 as stable.
  • Nearly half of Americans are not familiar with cryptocurrency (i.e.
    Bitcoin, Ethereum, Litecoin).
  • 3 in 10 Americans involved in household investment decisions say they
    never research investment strategies and potential investment
    opportunities.
  • A third of Americans involved in household investment decisions say
    they typically make high risk investments.

So far this year, the U.S. stock market has been a financial roller
coaster that has continued into summer. It has not been unusual to see
the Dow swing in both directions by hundreds of points. At the
conclusion of the first quarter, the S&P 500 had already seen 23 days
with one percent movements. That is nearly three
times
the number of days this occurred in all of 2017. It appears
volatility has become the new norm. Surprisingly, even with that
significant increase in fluctuations, one-third of Americans (37%)
characterized the financial markets during the first few months of 2018
as stable, according to a telephone survey in April of 1,014 U.S. adults
conducted by The Harris Poll for the American Institute of CPAs (AICPA).

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https://www.businesswire.com/news/home/20180809005022/en/

Investing Vs. Speculating (Graphic: Business Wire)

Investing Vs. Speculating (Graphic: Business Wire)

For many, increased market volatility may actually signal an
opportunity. According to the survey, nearly half of U.S. adults (48
percent) believe that a volatile market gives them an easy opportunity
to make a profit. Interestingly, both Millennials (aged 20-37) and Gen
Xers (aged 38-53) are much more likely than Boomers (aged 54-72) to
agree about the potential profitability of this short-term buying and
selling high-risk behavior (62 percent and 55 percent vs. 37 percent).
Experience in the markets appears to make a difference to more seasoned
investors. Many Millennials have only experienced a bull market as
adults and may not be as aware of the dangerous downturns that are a
natural part of the market cycle.

"Investing is not a get-rich-quick scheme and trying to time a volatile
market with hopes for huge gains is a serious financial risk," said Greg
Anton, CPA, chairman of the AICPA's National CPA Financial Literacy
Commission. "Many people who enter the market looking for a quick buck
find they can't handle watching their investment lose value, which leads
them to sell at a loss. For most people, seeking incremental gains over
a longer time horizon is a safer, more sustainable approach."

Cryptocurrency appears to be foreign to many investors. The survey found
that nearly half of U.S. adults (48 percent) are not familiar with
Bitcoin, Ethereum, or Litecoin. Of the 42 percent who are familiar with
cryptocurrency, there was wide speculation regarding how they would
perform in the next year. A quarter (24 percent) felt they would rise in
value, more than a quarter (29 percent) thought they would fall, over a
third (35 percent) believed they will fluctuate wildly, and 12 percent
said they will remain stable. Thus far in 2018, wild
fluctuations
have lead the five largest cryptocurrencies to decline
in value substantially. Year-to-date, the global crypto market cap has
fallen from $598.5 billion to just $234.9 billion, meaning more than
$360 billion of cryptocurrency wealth has disappeared.

Investing Vs. Speculating

The risk associated with an investment opportunity is a crucial element
to help Americans differentiate between investing and speculating.
Investing is usually considered lower-risk and longer-term focused,
whereas speculation is high-risk and short-term focused. An investor's
understanding of their own risk tolerance, the potential amount of money
they can endure losing, is essential when building a balanced portfolio.
The time over which an investment is expected to be held before it is
liquidated (time horizon), your net worth, income and the ease in which
an investment can be bought and sold (liquidity) all impact risk
tolerance.

In addition to knowing your own risk tolerance, investing involves
carefully researching business fundamentals such as quarterly financial
earnings, profit margins and market positioning to make sure the
opportunity fits your portfolio. Surprisingly, according to the survey,
three in ten Americans involved in household investment decisions (28
percent) say they never do research into investment strategies and
potential investment opportunities. And of those who do research, the
majority (63 percent) do it quarterly or less. Perhaps this lack of
research is what causes nearly a third of Americans involved in the
investment decision making in their household (32 percent) to typically
make high risk investments.

"Before Americans invest their hard-earned money, it is important they
take control of their financial future and do some research. While no
one can say with certainty whether an investment will go up in value,
taking the time to evaluate past performance can give some insight into
future possibility," added Anton. "A well-researched and properly
diversified portfolio that matches an investors risk tolerance will give
confidence to stay focused on long-term strategy and protect from the
temptation to sell during short-term price swings."

A steady annual return (36 percent) was the top investment decision
consideration Americans who are involved in these decisions cited in the
survey, followed closely by understanding investment fundamentals such
as risk level and expected return (35 percent). Previous performance of
an investment (29 percent) and liquidity (27 percent) were also in the
top three considerations of many. And notably, a quarter of these
Americans (26 percent) cited volatility as a top investment decision
consideration.

Investing in financial markets is inherently risky and times of market
volatility are difficult to navigate without an investment plan in
place. Of those Americans who are at least somewhat involved in
household investment decision making, six in ten (59 percent) do not
plan on making an investment in the next year.

Here is the mix of investments for the 35 percent of Americans who have
said they currently invest or are planning on investing in the next
year; real estate (19 percent), 401(k) (19 percent), and IRA or Roth IRA
(17 percent) were the most frequently cited. These are followed by
mutual funds (16 percent), individual stocks (16 percent), CDs (11
percent), government bonds (10 percent), ETFs (8 percent), and
cryptocurrency (five percent).

For Americans looking for investor education resources, the AICPA's 360
Degrees of Financial Literacy website
has numerous free resources
available including an introduction to the markets, a term glossary,
articles on investing basics and a collection of investment calculators.

Survey Methodology

This survey was conducted on behalf of AICPA by The Harris Poll by
telephone within the United States between April 5 and 8, 2018, among
1,014 adults (510 men and 504 women aged 18 and over) including 414
interviews from the landline sample and 600 interviews from the cell
phone sample. Results were weighted (using data from the Current
Population Survey) where necessary to bring them into line with their
actual proportions in the population.

About the American Institute of CPAs

The American Institute of CPAs (AICPA) is the world's largest member
association representing the CPA profession, with more than 431,000
members in 137 countries and territories, and a history of serving the
public interest since 1887. AICPA members represent many areas of
practice, including business and industry, public practice, government,
education and consulting. The AICPA sets ethical standards for its
members and U.S. auditing standards for private companies, nonprofit
organizations, federal, state and local governments. It develops and
grades the Uniform CPA Examination, offers specialized credentials,
builds the pipeline of future talent and drives professional competency
development to advance the vitality, relevance and quality of the
profession.

The AICPA maintains offices in New York, Washington, DC, Durham, NC, and
Ewing, NJ.

Media representatives are invited to visit the AICPA Press Center at www.aicpa.org/press.

About the Association of International Certified Professional
Accountants

The Association of International Certified Professional Accountants (the
Association) is the most influential body of professional accountants,
combining the strengths of the American Institute of CPAs (AICPA) and
The Chartered Institute of Management Accountants (CIMA) to power
opportunity, trust and prosperity for people, businesses and economies
worldwide. It represents 667,000 members and students across 184
counties and territories in public and management accounting and
advocates for the public interest and business sustainability on current
and emerging issues. With broad reach, rigor and resources, the
Association advances the reputation, employability and quality of CPAs,
CGMAs and accounting and finance professionals globally.

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