Investor optimism index slipped in August, even before stock
ST. LOUIS–(BUSINESS WIRE)–A majority of investors have taken advantage of low interest rates,
according to the third quarter Wells Fargo/Gallup Investor and
Retirement Optimism Index survey. The survey of 1,006 U.S. investors was
conducted August 7-16; the median age of the retired investors is 70 and
the non-retired is 45.
Six in 10 investors (58%) are benefiting from lower rates either by
taking out a car loan (30%), refinancing an existing mortgage or home
finance loan (17%), taking out a mortgage for a new home (16%),
obtaining a student loan for themselves or a family member (9%), or
taking out another type of loan (10%) over the past two years. Half of
investors say they are very or somewhat likely to take out a loan in the
near future in anticipation that rates may go up.
“Investors found a variety of ways to benefit from the low
interest rate environment, but this may be a good time for them to
revisit their investment
strategies and make sure they’re properly diversified to benefit in
rate environment as well,” Bob Vorlop, Head of Products and
Advice at Wells Fargo Advisors said. “Those nearing retirement and
retirees may be able to take some risk off the table in their
Interestingly, forty-four percent of investors say they would make major
adjustments to their investment strategy if interest rates rise. The
most common action investors anticipate making is buying more stocks
(30%), while just 8% say they would reduce their stock holdings. About a
quarter (23%) say they would buy bonds or other fixed income
investments, whereas 10% say they would sell these types of instruments.
“In a complex market environment, interest rates changes are yet another
factor that can be unsettling to investors, but one of the most
important roles a financial advisor can play is to design portfolios
that can meet investors’ objectives under a variety of circumstances,”
Vorlop said. “That can be a tremendous source of comfort and confidence
to investors,” he added.
Investor Optimism Index Slips
Even before the steep slide in stocks in late August, the Wells
Fargo/Gallup Investor and Retirement Optimism Index showed investor
confidence slipping 12 points to +58, from its seven-year high of +70
last quarter. The drop in optimism was attributed to non-retirees, whose
index score was down 17 points to +53 versus +70 in May. This was driven
more by mounting concerns about the economy – particularly the stock
market and inflation – rather than their ability to reach personal
financial goals. Retiree optimism held steady at +70, similar to +67 in
“While investors couldn’t have predicted the timing of the market
volatility, the wide market swings in late August underscored the
importance of having a diversified
portfolio that helps to shield them from the rollercoaster rides
that can occur in the stock market from time to time,” added Vorlop.
Investors Caught Off Guard by August Stock Market Correction
Prior to last month’s market
volatility, investors weighed in on their outlook for the stock
market. Overall, investors felt the market would either continue to go
up (30%) or hold steady (41%); only 26% expected it to start going down.
Additionally, more than half of investors, (53%) said it was a good time
to invest in the stock market and 41% of this group said their main
reason for believing this is that they expected the market to continue
to rise. On the flip side, 41% of investors thought it was a bad time to
invest, with the majority citing market volatility.
When investors were asked about specific issues that could affect the
investment climate in the U.S., the issues most likely to be seen as
very harmful were taxes (46%), unemployment (43%), and the threat of
cyberattacks (42%). Only 20% of investors in August believed China’s
economic slowdown was hurting the investment climate a lot while 42%
said it was hurting it a little.
Written Financial Plans Include Debt Management
The survey underscores the important role that a written financial
plan can play in helping investors meet their financial goals. Just
over a third of non-retired investors (36%) say they have a written
financial plan, and of these 45% are highly confident that their plan is
adequately designed to ensure they reach their financial goals. Slightly
more retired investors have a written plan (45%), and a somewhat higher
share, (53%) are highly confident it is adequately designed to achieve
their financial goals.
More than half of non-retired investors with a written plan (56%) and
44% of retired investors with a written plan say their plan includes
“To be truly comprehensive, a plan should take into account essential
elements that can help investors reach their financial goals, including
both investment and debt strategies. Putting that plan in writing with
the help of a professional financial advisor can often be the catalyst
to important changes investors can make in pursuit of a brighter
financial future,” Vorlop said.
Investors Trim Their Debts
Two- thirds of all investors have been consciously reducing
their debt. While three-quarters of investors — including 83% of
non-retired investors and 54% of retired investors — have some type of
debt, most (89%) say they have made some effort to reduce their debt.
Among investors who carry debt, nearly half (46%) say the amount of debt
they are carrying has decreased in the past two years, while 31% say it
has increased and 23%, say their debt load has stayed the same. Among
all investors, debts include either a mortgage (53%), a credit card
balance that carries over from month to month (37%), a car loan (35%), a
student loan (23%) or another outstanding debt or loan (12%).
Seven in 10 investors who say they made an effort to trim debt feel they
have been successful in reducing their debt as much as they had hoped.
However, 62% say they intend to make a major effort in the future to
reduce their debt.
In the same vein, the slight majority of all investors (56%) say it is
critically important for them to be debt-free in retirement. Another 36%
say this is important but not critical while 8% say it is not too
important or not at all important. The slight majority (55%) also
believe it is “very possible” for them to be debt-free in retirement;
37% say it is somewhat possible and 8% not possible.
Despite these indications that investors would prefer to be debt-free,
the vast majority – 70% — see debt as necessary and acceptable if used
sparingly. Just 13% believe any amount of debt is bad and should be
avoided while 14% view debt as valuable tool for leveraging money that
should be taken advantage of. While views on this are similar by
retirement status, they differ somewhat by asset class with investors
with $100,000 or more in assets much more likely than lower asset
investors to view debt as a powerful tool, 20% vs. 6%.
Non-retired investors are generally doubtful they will receive their
full benefit from Social Security when they retire: 52% say it is not
too or not at all likely the system will be able to pay them their full
benefit. And while another 31% say it is somewhat likely, just 15%
believe it is very likely.
As a result, most non-retirees are not counting on their Social Security
benefit to be a major source of income when they retire. Fifty-eight
percent say it will be a minor income source and 14% not a source at
all. Just 26% expect it to be a major income source for them. This
contrasts sharply with current retirees, 42% of whom describe their
Social Security benefit as a major income source and 37% as a minor
Read Wells Fargo Investment Institute’s report on Five
Ways Rising Interest Rates Could Affect Investors.
About the Wells Fargo/Gallup Investor and Retirement Optimism Index
These findings are part of the Wells Fargo/Gallup Investor and
Retirement Optimism Index, which was conducted August 7-16, 2015, by
telephone. The Index includes 1,006 investors randomly selected from
across the country with a margin of sampling error is +/- four
percentage points. For this study, the American investor is defined as
an adult in a household with total savings and investments of $10,000 or
more. About two in five American households have at least $10,000 in
savings and investments. The sample size is comprised of 74% non-retired
and 26% retirees. Of total respondents, 45% reported annual income of
less than $90,000 and 55% of $90,000 or more. The Wells Fargo/Gallup
Investor and Retirement Index is an enhanced version of Gallup’s Index
of Investor Optimism that provides its historical data. The median age
of the non-retired investor is 45 and the retiree is 70.
The Index had a baseline score of 124 when it was established in October
1996. It peaked at 178 in January 2000, at the height of the dot-com
boom, and hit a low of negative 64 in February 2009.
About Wells Fargo & Company (Twitter @WellsFargo)
Wells Fargo & Company (NYSE: WFC) is a nationwide, diversified,
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Founded in 1852 and headquartered in San Francisco, Wells Fargo provides
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and has offices in more than 35 countries to support the bank’s
customers who conduct business in the global economy. With more than
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United States. Wells Fargo & Company was ranked No. 25 on
Fortune’s 2013 rankings of America’s largest corporations. Wells
Fargo’s vision is to satisfy all our customers’ financial needs and help
them succeed financially. Wells Fargo perspectives are also available at blog.wellsfargo.com.
For more than 70 years, Gallup has been a recognized leader in the
measurement and analysis of people’s attitudes, opinions, and behavior.
While best known for the Gallup Poll, founded in 1935, Gallup’s current
activities consist largely of providing marketing and management
research, advisory services and education to the world’s largest
corporations and institutions.
Wells Fargo & Company
Allison Chin-Leong, 212-214-6674 (Media)