Many Americans are worried about the turbulence in the economy and are leaving their money on the sidelines rather than investing in the markets, according to a quarterly survey published by Allianz Life Insurance Company of North America.

Out of more than 1,000 investors surveyed, 63% said they are keeping their money out of the market while 62% said they would prefer to leave it in cash, according to the report, called the “2023 1Q Quarterly Market Perceptions Study.”

But investors could lose out on significant gains when the markets turn around, according to Kelly LaVigne, vice president of consumer insights at Minneapolis-based Allianz.

“The worst thing you can do is be out of it when everything recovers,” LaVigne said. “We’re the only industry in the world where when everything’s on sale nobody wants to buy it, but as soon as it’s at its highest price, no one can resist buying more of it.” 

When prices drop, there is no telling when they will increase again and how quickly. The most significant portion of a recovery could occur before an investor can get back into the markets.

“By the time the worst is past you’ll have missed a couple of days in the market when it really soars,” he said. “The recovery is quicker for those who are in the market than for those out of the market.” 

Advisors need to encourage their clients to stay in the markets and not wait on the sidelines for things to turn around, LaVigne explained.

“There are other ways to combat the fact that you’re afraid of losing money rather than keeping it until you think the worst is past,” he said. 

One option is a fixed-index annuity which, while it does not provide 100% participation in the market, does allow for protection against market fluctuations.

Registered index-linked annuities are another option. They will capture some market growth, but they have protections built into them. They can make up 10% to 30% of losses in a given year, LaVigne said. 

Finally, there are exchange-traded funds that come with their own buffers, which can help an investor recoup some percentage of their loss if the value of the portfolio drops below a certain level.

Investors have a better chance of making money in the markets than they do being out of it, LaVigne said. When they are squeamish, they could lose out on those days that make their recovery quicker, he said, and that’s “one of the hardest things to try to get across to a client.”

While advisors must coax their clients to either stay in the markets or get back into them, there is one group they might have to double their efforts for: members of Generation X (those born between 1964 and 1978).

The percentage of Gen Xers holding their money back from the markets is 67%, the study said. Compare that to the 54% of baby boomers staying out of the markets and the 66% of millennials who are. (Boomers are defined here as those born between 1945 and 1963, while millennials are those born between 1979 and 1996.)

Members of Generation X lack confidence not only in the current economy but also in the methods of saving for their financial future. About 43% of them fear their employer will suspend their 401(k) match benefit. Only 38% of millennials and 24% of boomers fear that happening.

Finally, 85% of Gen Xers said they are concerned they may not be able to afford the lifestyle they want in retirement because of the increased cost of living, while only 80% of millennials felt that way and 72% of boomers did.

“Gen Xers have been exposed to a lot of the bad stuff that can happen in the markets,” LaVigne said, which has likely made them more reluctant to invest. People in this group have lived through financial hardships such as the tech bubble of the ’90s bursting, the savings and loan scandals of the ’80s, the pandemic and now record-high inflation and tumultuous markets, LaVigne explained.

Millennials understand the importance of saving, he added, which is why other studies have found that members of Generation Y have begun to out-save Generation X. They started earlier, and when someone starts earlier, they don’t need to save as much because their money will be working for them, LaVigne said.

“When you invest in the markets, you will, at the end, be wealthier than you expected if you do it right, if you get the right financial advice and you don’t panic every time the markets make a correction and you’ll stay in it for the long term,” he said.