Volatility Doesn’t Deter Investor Optimism, Wells Fargo Finds

Despite recent volatility in the stock market, investor optimism remains at a 17-year high, according to the latest Wells Fargo/Gallup Investor and Retirement Optimism Index.

Used as a broad measure of U.S. investor confidence in the investing climate, the first quarter 2018 Index of +139 is essentially unchanged from the past two quarters, but up from +126 a year ago, according to the report. Notably, the last time the index exceeded the current level was in September 2000, when it was +147. For comparison, 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 -64 in February 2009.

The index also finds that 60% of investors say they are at least somewhat optimistic about the 12-month outlook for economic growth, stock market performance and unemployment, while fewer than a quarter of investors are at least somewhat pessimistic. Investors are also most positive about maintaining their household income over the next year and reaching their five-year investing goals, with 71% at least somewhat optimistic about each.

Meanwhile, more than half of investors (52%) report feeling “not too concerned” or “not at all concerned” about the recent volatility, while just under half (45%) say they are “very” or “somewhat” concerned. This is still below the 53% of investors who reported concern after stock market volatility in 2015 and 64% in 2016.

Wells Fargo notes that the survey was conducted Feb. 12-25, 2018, a week after January’s positive labor report was released, but also after a major sell-off, when the DJIA dropped below 24,000 and then later recovered.

In fact, despite the recent market swings, 60% of respondents say it is a good time to invest in the financial markets, which is unchanged from a year ago and higher than the 51% average recorded since 2011. This measure reportedly dropped to as low as 35% in September 2011.

And nearly half (49%) of investors say they have “quite a lot” or “a great deal” of confidence in the market as a place to save and invest for retirement — up from 36% in February 2016. Wells Fargo notes that this is the highest level of confidence seen on this measure over the course of its six-year trend.

“Over the course of this bull market since the recession, there have been periods of volatility. But people seem to brush it off and stay the course, knowing it will help them in the long run in retirement,” says Joe Ready, head of Wells Fargo Institutional Retirement and Trust. “However, now is a good time to step back and assess your current investment allocation and rebalance investments to make sure they align with your targeted risk strategy,” adds Ready.

Tax Cut Impact

Investors apparently are not more likely to change their retirement savings strategy from using pre-tax to after-tax investments because of the recently enacted tax reform law, which lowered tax rates. According to the findings, 57% of investors say their strategy won’t change, while slightly more say they will focus more on pre-tax (19%) than after-tax (12%) investments.

This relatively low enthusiasm for switching could be caused, at least in part, by lack of knowledge — just 25% of non-retired investors say they are “very familiar” with the difference between traditional and Roth retirement accounts, 36% say they are “somewhat familiar,” and nearly a third (32%) say they are either “not too familiar” or “not at all familiar.”

Retirement Confidence

While slightly improved from four years ago, relatively few investors — 34% today versus 26% in 2014 — say they are “highly confident” they will have enough money to maintain their preferred lifestyle throughout retirement. Perhaps that point of view changes somewhat once investors actually retire. According to the findings, 28% of non-retired investors, compared with 48% of retired investors, are highly confident about this.

When asked how much thought they have given to seven different aspects of retirement, how they will spend their leisure time tops the list of non-retired investors, edging out other important topics such as health care costs and taxes. Here’s the full list of retirement-related topics about which people have given “a lot or a fair amount” of thought:

  • How to spend leisure time (53%)
  • Where to live (48%)
  • Best age to take Social Security (45%)
  • Paying for routine medical care (45%)
  • Strategy for drawing down retirement accounts (41%)
  • Paying for long-term care or assisted living (37%)
  • Amount of taxes in retirement (34%)

“The fact that about half of people haven’t given serious thought to their future taxes, health care expenses, draw-down strategy or Social Security could explain why only a third of investors are highly confident about their retirement savings,” said Ready. “The act of thinking through these important drivers of retirement outcome can help inform people about their financial preparedness for retirement.”

Conducted Feb. 2-25, 2018, by phone, the index included 1,321 investors age 18 and older, consisting of 71% non-retirees and 29% retirees. For purposes of the study, an investor was defined as an adult in a household with total savings and investments of $10,000 or more.

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