Stocks Double in 3 Years, But Many Stay on Sidelines

Stock prices have doubled over the past three years, but that still hasn't convinced many Americans to invest in the market.

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This week marks the third anniversary of the market's low during the financial crisis. The S&P 500 index , the market's broadest measure, hit an intraday low of 666.79 on March 6, 2009. Since then, the index has soared over 100 percent, meaning a $500,000 portfolio invested in an S&P 500 index fund would now be worth $1 million.

The rise up has been anything but smooth, however. Stocks, in fact, fell sharplyon Tuesday amid continued worries about the Greek debt crisis, the global economy and tensions in the Middle East.

For that reason, many investors have stayed out of the market over the past three years—and some may never return, no matter how far stocks rally.

“On the main street level, people are still worried about jobs and the economy,” says Doreen Mogavero, president and CEO of Mogavero Lee & Co.

Mogavero says this is a much different market than it was before the financial crisis, with low volume and more volatility. But the fundamentals are still strong.

“Today, you’re looking at companies that are lean, have tons of cash on their balance sheets and are much better equipped to weather another down cycle if we were to have one,” she says.

Still, average investors hurt by the volatility have avoided stocks, choosing instead to pile into bond funds or simply stay on the sidelines. And even those that have ventured into stocks are less willing to invest for the long-term.

“You’ve seen more money come out of the market and outflows have been greater,” says Mogavero. “People are using this recent rally as a chance to take money out and hold onto it.”

Volume has plunged more than 50 percent since the depths of the financial crisis, a testament to low investor participation. Last Friday, only a dismal 3.2 billion shares changed hands on the New York Stock Exchange, compared to approximately 7.5 billion on an average day this time three years ago.

Even so, some economists think it's not too late for investors to change their minds and wade back into stocks.

“The U.S. economy is gaining solid footage here,” says Peter Cardillo, chief market economist at Rockwell Global Capital. “I don’t share the view that the market is headed for a correction because the economy is faring better and it’s also encouraging to see that consumers are continuing to spend.”

Cardillo expects that even housing, which has lagged the overall recovery, will see a turnaround by the third quarter.

Barring major geopolitical problems such as worries over the Middle East and ongoing sovereign debt issues in Europe, Cardillo says the S&P has the potential to rally to 1,435-1,460 this year.

“While market have been decoupling from the EU, there’s always an element of fear,” said Cardillo. “That’s what cuts this market short.”

—Follow JeeYeon Park on Twitter: @JeeYeonParkCNBC

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