In a climate of political uncertainty, American investors are as optimistic about putting their money in the market as they have been in nine years. The Wells Fargo/Gallup Investor and Retirement Optimism Index jumped in the third quarter to its highest level since mid-2007.
In a climate of political uncertainty, American investors are as optimistic about putting their money in the market as they have been in nine years. The Wells Fargo/Gallup Investor and Retirement Optimism Index jumped in the third quarter to its highest level since mid-2007.
The index, which gauges investor optimism, stands at plus-79, up from plus-62 in the second quarter. The gains have been driven by improved investor sentiment about the stock market, as 51 percent of investors are now “very” or “somewhat” optimistic about the 12-month outlook for the markets, up from 42 percent in the second quarter. The index surged among retired investors — rising 36 points to plus-81 as they became more optimistic about the stock market and maintaining their household income.
Although investor optimism is reaching nine-year highs, the upcoming presidential election has the potential to rattle it. More than six in 10 investors (62 percent) strongly agree they are “worried” about how the outcome of the presidential election will affect the financial markets and another 25 percent somewhat agree. Only 13 percent disagree. A higher proportion of investors ages 18 to 49 are highly worried than those ages 50 and older, 68 percent versus 57 percent respectively. Also, more women investors than men are highly worried about the impact the outcome of the election may have on the market: 69 percent versus 56 percent.
These findings are from the third-quarter survey conducted by telephone with 1,021 U.S. investors during Aug. 5-14.
Half of investors (52 percent) say stock market volatility, rather than continued low interest rates (38 percent), is the greater threat to their portfolio over the long term. Non-retirees are especially likely to say stock market volatility is the greater source of concern (57 percent), versus 34 percent who are more concerned about low rates. On the other hand, 47 percent of retirees feel continued low interest rates are a greater problem, versus 41 percent of retirees who fear market volatility over low rates.
When investors were asked to choose whether low interest rates or high interest rates are better for their own financial situation today, 63 percent of all surveyed say they prefer low interest rates and this surges to 71 percent of non-retirees. However, this is not the case for retirees, of whom 41 percent said they prefer low rates. A third of all investors said they prefer high interest rates.
“Most people who are not yet retired have a consumer mindset when they consider the benefit of low rates because they like their loans to cost less,” said George Rusnak, co-head of global fixed income strategy for Wells Fargo Investment Institute. “However, people must also consider the impact of low rates on long-term investing. The way to navigate through low rates as an investor is to build a diversified portfolio that has the potential to sustain itself through volatility and the challenges of a low-rate environment.”
According to the survey, 43 percent of investors say they have moved their money to cash or cash equivalent savings over the past year — far more than those moving money to stocks or bonds. Following movement to cash, 29 percent say they moved money to stocks or mutual funds in the past year, while 20 percent say they moved money to “other investments.” Fewer investors (13 percent) have moved money to CDs or money market accounts, and 10 percent have moved money to bonds.
Meanwhile, investors are clear about their aversion to risk, with 59 percent saying they are only willing to take on “a little risk” (44 percent) or “no risk at all” (15 percent). About 40 percent say they are willing to take on “a lot of risk” (5 percent) or a “fair amount” of risk (35 percent).
“While investors are concerned about market volatility and taking on risk, people actually run the risk of being complacent as they avoid potential stock market risk. Market avoidance may not allow people the chance to grow their money over time,” said Rusnak.
According to the study, the average annual rate of return investors expect to realize on their investments this year is 7 percent. This is in line with the performance of a globally diversified portfolio, which has been up about 7 percent so far in 2016. However, nearly one in five investors (18 percent) think they will earn over 10 percent on their investments this year.
The survey asked investors how their savings and investments are currently allocated. Respondents report having an average of 35 percent of their savings and investments in stocks or stock mutual funds and 10 percent in bonds or bond funds. Investors also revealed they have an average of 19 percent in cash savings and 11 percent in CDs or money market accounts — allocations that are earning little to no interest. An additional 12 percent of investors’ portfolios are in “other investments,” which could include real estate, gold or other commodities and alternative investments.