A new study finds persistent investor concerns that a recession is nearing, but most investors say they feel “prepared” if that happens.
According to the latest Wells Fargo/Gallup Investor and Retirement Optimism Index, a solid majority of investors (61%) describe the economy as “booming” or “solid,” but just over half (51%) believe a recession will begin either later in 2019 (11%) or in 2020 (40%).
In addition, the Index – which measures U.S. investor confidence in the investing climate, based on a representative sample of U.S. adults with $10,000 or more invested in stocks, bonds or mutual funds – dropped to 85 for second quarter 2019, down 18 points from 103 a year ago. Two-thirds of respondents (66%) say they are “prepared” for how they will handle their investments in the event of a recession. This includes 72% of retirees and 64% of nonretirees.
Tracie McMillion, head of global asset allocation strategy for Wells Fargo Investment Institute, notes that it’s good to see that a solid majority feel they are prepared. “While we do not see a recession in the near term, in many ways we are still recovering from the last one – which left a deep scar on many investors. This sense of preparedness is a positive sign,” she says.
As for the two-thirds of investors who say they feel prepared, there are differences by subgroup:
- 77% of men and 55% of women feel prepared.
- 72% of retirees and 64% of nonretirees feel prepared.
- 74% of higher asset ($100,000+) investors feel prepared versus 57% of lower-asset investors.
What Actions Are They Taking?
Despite all the doom and gloom about a forthcoming recession, nearly two-thirds of investors (65%) say that now is a good time to invest in the financial markets, consistent with the 64% to 68% range seen at the start of 2018. More than half (53%) say the rise in markets makes them feel more confident about their retirement savings. Yet fewer than half report that the rise in markets makes them feel more confident about spending more money (44%) or making major purchases (40%).
As such, nonretirees reportedly are not taking major precautions to guard against a future recession, as only 18% plan to delay a home purchase and 23% plan to delay retirement. Slight majorities say they are preparing by taking actions that are good financial practices. This includes increasing their savings (59%) and cutting back on spending (52%). Some are reducing their stock holdings (22%) and increasing their bonds (15%), while nearly half say they are diversifying their portfolio more and half say they are increasing their cash holdings.
Catch-up Strategies
When asked what they are doing to catch up on their retirement savings, the most common step non-retired investors say is paying off high-interest debt (80%). More than half of investors (54%) say they are increasing the amount they are saving; this was nearly tied with deciding to retire later than their preferred retirement age (52%). Less common actions are cutting back on daily expenses (38%), making catch-up contributions (32%), downsizing their home (13%) and working a second job (12%).
And while four out of five non-retired investors report having a defined contribution plan, this group falls far short in deferring the allowable maximum savings. When asked how much they plan to save this year, only 18% of investors surveyed across all age groups plan to save the maximum allowed for their age. On average, investors under 50 are planning to save $8,969 in their 401(k) this year, just under half the maximum allowable amount of $19,000. Investors who are 50 and older are planning to save an average $10,761 in their 401(k) this year, less than half the maximum allowable contribution of $25,000.
Investors also report having an average 44% of their savings invested in stocks. When asked to think ahead to their portfolio at age 80, investors estimate they will have just 26% invested in stocks at that time. Notably, the study shows that there is virtually no difference between the estimates of current stock exposure given by retirees and nonretirees. Retirees estimate they currently have 46% of their savings invested in stocks, and nonretirees estimate they have 44%. Yet, when looking ahead to age 80 or older, retirees estimate they will have 33% of their savings in stocks at age 80, and nonretirees estimate they will have 23%.
The results of this Wells Fargo/Gallup Investor and Retirement Optimism Index are based on a Gallup Panel web study completed by 1,240 U.S. investors, aged 18 and older, from May 6-12, 2019. The sample consists of 71% nonretirees and 29% retirees. Of total respondents, 42% reported annual incomes of less than $90,000; 58% reported $90,000 or more.
