Nervous Nellie

Nervous Nellie refers to an investor who is not comfortable with investing and the risks associated with it. Nervous Nellies have very little risk tolerance. As a result, their investment returns are likely to suffer because they will put money only in very low-risk, low-return investments. Without taking on greater risk, Nervous Nellies may not be able to generate the returns they need to meet such goals as being able to retire.

In general parlance, a Nervous Nellie is an unduly timid or anxious person. If a Nervous Nellie decides to take a chance on a higher-risk, higher-return investment like stocks, he or she will most likely sell the moment the market ticks downward. Investors who sell when their holdings decline in price might miss some bad moments in the market, but they are also likely to miss the upswings.

Anxious investors like Nervous Nellies often buy high and sell low, the opposite of the old investing truism “Buy low and sell high.” A nervous investor who is prone to making rash, ill-advised moves often buys and sells at the worst times. Nervous Nellies are often too scared to buy into a position until it has been rising for some time, increasing the likelihood of a decline. And once the position declines, Nervous Nellies will often sell before it has a chance to recover. This behavior leads to the Nervous Nellie locking in losses on a consistent basis.

The buy-high, sell-low behavior of Nervous Nellies, combined with transaction fees associated with constant buying and selling, causes their portfolios to underperform. From 1992-2011, the average investor had an annualized 20-year return of 2.1 percent, according to data from Nuveen Asset Management. This return underperformed almost every major asset class. During this same time period, Real Estate Investment Trusts returned 10.9 percent, oil 8.6 percent, the S&P 500 7.8 percent, gold 7.6 percent, bonds 6.5 percent, EAFE equities 4 percent, and the value of homes 2.5 percent. Nervous Nellies would have fared far better putting their money in almost any mainstream asset allocation, like a 60/40 split, and not touching it for 20 years.

Following the 2008 financial crisis, millennial savers put more money than ever into their 401(k) retirement savings accounts. A 2015 BankRate.com survey found that 39 percent of savers under the age of 30 cited cash as their investment vehicle of choice. Those investors were likely sacrificing the advantage of a long investment horizon, which would allow them to easily absorb the volatility of a high-equity allocation in exchange for higher returns.