Last year’s stock market volatility rattled Americans so much that almost two in three prefer to have their money sit in cash on the sidelines rather than endure market swings.

That is the latest finding from Allianz Life, which asked this question for the first time in a recent survey of 1 005 adults over 18 in December.

And data released in January by the Department of Commerce shows that Americans are again starting to sock away more cash. The savings rate for December was 3,4% — the highest level in seven months and the biggest month-over-month jump since July 2021.

While cash savings look more attractive now given the higher yields on safer investments, some experts worry that if Americans pull money from the stock market to try to avoid losses, they may end up missing the returns on the way back up.

“If you are keeping money in cash in an attempt to time the market, don’t,” Kelly LaVigne, Allianz’s vice president of consumer insights, said. “Trying to time the market will be a failure. What we know is that as the market improves, the bulk of those gains will be made in just a few days. So, if you miss those big days, you’re going to be behind.”

The reality is that investing in the stock market is worrisome for many Americans right now.

“We don’t have a comparison of the number of people who are sitting on cash rather than investing back to 2020 and 2021, but one point we can look at is comfort with investing,” LaVigne said.

Just 19% of Americans say they are comfortable with current market conditions and ready to invest now, according to the report. That’s down from 26% in the third quarter of 2022 and 29% at this time last year.

And more than three-quarters of Americans think the market will continue to be very volatile in 2023. In fact, if markets continue to be shaky in 2023, 65% say they will have to adjust their retirement and investment plans, up from 57% at this time last year.

“The volatility in today’s market is scary, especially for people who are approaching or in retirement,” LaVigne said. “But money kept in cash isn’t helping your long-term finances. Cash in an everyday checking account isn’t growing, so with today’s inflation, you’re losing money.”

Whispers of a looming recession coupled with still-high inflation also aren’t helping Americans feel the need to take more risk when investing.

More than three-quarters of Americans are more concerned about paying bills right now than saving for their financial future, according to the report’s findings. As a result, the majority of Americans (55%) say they have either stopped or reduced their retirement savings due to rising inflation last year and nearly half (45%) say they have had to dip into their retirement savings to pay bills.

But skipping the market now could also mean that these Americans could miss the upside when the pendulum swings back, which happened after the Great Recession when investors fled the market quickly and re-entered belatedly.

The market’s worst days tend to be followed by its best days. Since 1980, after each instance of big market declines, the market never failed to recover and make new highs, according to research from JP Morgan Asset Management.

In the past 20 years alone, the S&P 500 annualised 9,7%, but missing just 10 of the market’s best days, which tend to occur within less than one month of the 10 worst days, would have reduced that annualised return to 5,5%, according to the research.

Already, the S&P 500 is up more than 8% year to date, following a 7% gain in the final three months of 2022. That was, of course, after the index tanked almost 25% in the three preceding quarters.

“We're definitely seeing some market jitters right now,” Rachel Elson, a financial advisor at Perigon Wealth in San Francisco, said.

“We don't see a lot of folks who bailed out of the markets, although there's plenty of data to show that people tend to sell at the exact wrong time. We do, however, have some new clients who've been stockpiling cash and are nervous about investing; last year reinforced all their worries about the markets.”

One way to slowly move your cash back into the market is dollar-cost-average over a three- to six-month period, Elson said.

“The best way to keep your brain from sabotaging yourself is to make a plan in advance," she said.

If you have, say, $100 000 in cash, you could invest it in four chunks of $25 000 on a specific day each month. And it's crucial to diversify your stock portfolio over a range of sectors, such as international, US equity, big and small cap stocks. That spreads your risk.

“Then stick to the plan,” Elson said. “Don't psych yourself out about buying on an up day or a down day.”

That also doesn’t mean you can’t put some of your cash into safer investments.

“Many market observers expect there could be further pain ahead in the stock market, especially if corporate earnings start to disappoint in the face of a recession,” Michael Wagner, a certified financial planner and co-founder of Omnia Family Wealth, said in an interview. “Allocating a portion of your portfolio to a three-month T-bill paying 4,6% effectively allows you to kick the can down the road while getting paid to wait and see.”

Finding safer investments with decent returns isn’t too hard right now, thanks to the Federal Reserve’s rate hikes. In addition to the three-year T-bill Wagner cited, a six-month T-bill and one-year T-bill are now yielding around 4,6% and nearly 4,7%, respectively. And it’s possible to find a one-year certificate of deposit, or CD, offering a 4,25% yield.

You can also use some of your cash toward a guaranteed, 100% return on your money: Paying off high-interest debt like credit card bills.

“That way,” LaVigne said, “you are still improving your overall financial situation.” — YahooFinance.

  • Kerry is a senior reporter and columnist at Yahoo Finance. — Twitter @kerryhannon.