U.S. investor optimism holds steady near 16-year high
Majority haven’t yet felt impact of rising rates on finances
Investors say they could save extra $300 per month for retirement with effort
NEW YORK--(BUSINESS WIRE)--While still quite positive relative to the blunted outlook after the
recession, the Wells Fargo/Gallup Investor and Retirement Optimism Index
held steady near its 16-year high recorded last quarter. Investors
are more likely to say they worry about current geopolitical matters
harming their investments than worry about harm from the economy. The
latest index, which gauges investor optimism, now registers at +124,
essentially unchanged from +126 in February. This represents a leveling
off well below the +178 historical high for investor confidence recorded
in January 2000. This marks the first time since the first quarter of
2016 that the index did not improve. The Wells Fargo/Gallup Investor and
Retirement Optimism Index second-quarter survey was conducted by
telephone with 1,005 U.S. investors May 4-7.
Investors rank geopolitical risks top threat for investing climate
When asked about possible threats to the U.S. investment climate in the
coming year, three-quarters of investors (75%) were very or somewhat
worried about the impact of the various military and diplomatic
conflicts happening around the world. The domestic political climate
ranked a close second at 69%. The overall performance of the economy
sparked far less concern, with about half (49%) saying they are very or
somewhat worried.
“It’s good to see optimism staying near its 16-year high. And given
recent headlines, it’s not surprising that investors are more concerned
that geopolitical risks pose a greater threat to their investments than
the economy. While the news may be concerning to investors, we advise
clients not to let those anxieties impact their
investment
plan
because that doesn’t change the underlying positive
fundamentals of the economy,” said Brian Rehling, co-head
of global fixed income strategy at Wells Fargo Investment Institute.
Low interest rates preferred; impact of rising rates unnoticed
Investors favor low interest rates, with two-thirds (66%) saying they
are satisfied with current interest rates. Nearly seven in 10 investors
(69%) think low interest rates are better for their financial situation
than high rates. Notably, there is a difference by retirement status,
with three-quarters (76%) of non-retirees vs. 52% of retirees saying
they prefer low rates. Conversely, nearly twice as many retirees as
non-retirees say they prefer high rates, 39% vs. 21%.
Despite investors’ preference for low rates, two-thirds say they haven’t
noticed any impact of higher interest rates on their finances. The rest
of investors are split between saying they have noticed a positive (13%)
or a negative (14%) impact on their finances.
“The pace at which interest rates have been rising has been so slow that
investors may not feel the heat until it’s boiling,” said Rehling. “Fed
rate hikes, while still slow, are starting to accelerate. In the current
low-rate environment, investors may find they have taken on more credit
or interest rate risk than is appropriate for their risk tolerance in an
attempt to generate yield. It’s important to focus on diversifying
income sources, regularly check the temperature on your risk tolerance
and monitor your portfolio to make sure your risk tolerance is aligned
to your financial goals.”
Non-retiree vs. retiree on impact of rates
While most retirees also report seeing no impact from higher rates,
slightly more say they have noticed a positive (16%) versus a negative
(9%) impact. By contrast, non-retirees are a bit more likely to say the
impact has been negative (17%) than positive (12%).
Two-thirds of investors overall say that additional interest rate hikes
this year will not compel them to make any changes to their investments.
However, nearly a quarter (23%), say they would transfer some money out
of stocks and into interest-bearing accounts or investments such as CDs.
“Whatever your age, low rates can hurt savers. With rising rates, the
inertia among investors to stick with their investments shows that they
may be more comfortable with the risks in the stock market. However, the
lack of meaningful rate and/or credit shocks in recent years may have
given some investors a false sense of security,” Rehling noted.
Investors better poised to save more for retirement
When non-retired investors carefully thought about all of their spending
and expenses, they said they could save an additional $300 a month
(median) toward retirement, if they made a serious effort to do so. This
is up from a $200 a month (median) when non-retired investors were
polled on this in late 2014.
“Whether that extra money is to pay down debt or save for retirement,
this is a great sign when investors feel they could save
more than in years past. Having a financial plan and staying
disciplined can help investors meet their financial expectations,”
Rehling said.
Investors comfortable with their debt load
Total household debt recently reached a new peak of $12.7 trillion,
according to the Federal Reserve Bank of New York. The majority of
investors (77%) feel comfortable with the amount of debt they may have
accumulated over the past several years when interest rates have been
low. On the flip side, 21% of investors say they are not comfortable
with the amount of debt
they may have accumulated, given rising interest rates. By asset level,
investors concerned about being overextended was twice (32%) as high
among those with less than $100,000 in assets as among those with more
than $100,000 in assets (15%).
“As rates continue to slowly rise, investors should carefully assess how
that will impact them as a consumer (borrower) and investor (saver) —
and then formulate a plan to navigate through the gradual rate rises.
Scaling back spending while prioritizing higher-cost revolving debt can
help lessen the impact of higher rates,” Rehling said.
For more information, read WFII’s Ask the Institute: What
Risks Can Investors Expect in a Rising-Rate Environment? and WFII’s
special report: Five Ways Rising 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 May 4-7, 2017, by
telephone. The index includes 1,005 investors, aged 18 and older,
randomly selected from across the U.S. with a margin of sampling error
of +/- 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 U.S. households have at least $10,000
in savings and investments. The sample size consists of 72% non-retirees
and 28% retirees. Of total respondents, 41% reported annual incomes of
less than $90,000; 59% reported $90,000 or more. The Wells Fargo/Gallup
Investor and Retirement Index is an enhanced version of Gallup’s Index
of Investor Optimism, which provides the historical trend data. The
median age of the non-retired investor is 46 and the retiree is 69.
The Index of Investor Optimism 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.
About Wells Fargo
Wells Fargo & Company (NYSE:WFC) is a diversified, community-based
financial services company with $2.0 trillion in assets. Founded in 1852
and headquartered in San Francisco, Wells Fargo provides banking,
insurance, investments, mortgage, and consumer and commercial finance
through more than 8,500 locations, 13,000 ATMs, the internet
(wellsfargo.com) and mobile banking, and has offices in 42 countries and
territories to support customers who conduct business in the global
economy. With approximately 273,000 team members, Wells Fargo serves one
in three households in the United States. Wells Fargo & Company was
ranked No. 27 on Fortune’s 2016 rankings of America’s largest
corporations. Wells Fargo’s vision is to satisfy our customers’
financial needs and help them succeed financially. News, insights and
perspectives from Wells Fargo are also available at Wells
Fargo Stories.
About Gallup
Gallup delivers analytics and advice to help leaders and organizations
solve their most pressing problems. Combining more
than 80 years of experience with its global reach, Gallup knows more
about the attitudes and behaviors of employees, customers, students and
citizens than any other organization in the world.
