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Investor Optimism Falls on Retirees’ Worries

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Retired investors’ optimism plummeted in the second quarter on concerns about the economy, and most Americans say the financial market is not a good place for ordinary investors to grow wealth, Wells Fargo reported Wednesday.

The Wells Fargo/Gallup Investor and Retirement Optimism Index fell by eight points to +29 in June from +37 in February, largely because of a 17-point drop in optimism among retired investors.

Non-retirees’ optimism fell only four points — +31 versus +35 in February — the quarterly poll of 1,036 American investors 18 and older found. The survey was conducted between June 27 and July 9.

Notwithstanding their ambivalence about the economy and investing, 84% of the investors surveyed said the American Dream was achievable.

For 93%, the dream included the ability to afford a home. Ninety-two percent cited living comfortably in retirement, and another 92% said it included having meaningful employment.

The least cited version of the dream, mentioned by 76% of respondents, was having a standard of living surpassing that of their parents.

Nearly nine out of 10 non-retired investors said they were optimistic they would achieve the American Dream versus 77% of retired investors.

“The American Dream remains a pretty simple concept among investors: a home, a good job and money to live on later in life,” Joe Nadreau, head of innovation and strategy at Wells Fargo Advisors, said in a statement.

“While retirement gives some investors pause, most still view the American Dream optimistically and are taking steps to realize it.”

Although most respondents saw a secure retirement as fundamental to realizing the American Dream, 47% of the non-retired investors were either “extremely” or “somewhat” worried that they had not saved enough to retire.

Twenty-nine percent were a “little worried,” while 24% were “not worried at all.”

Similarly, 46% of both retired and non-retired investors were worried that they would not have enough money to last throughout their retirement. This included 19% who were “extremely worried.”

By contrast, 20% were “a little worried,” and 29% were “not worried.”

What Would You Do with $10,000?

Asked what they would do with an extra $10,000, 41% of investors said they would invest money in the markets, while 56% said they would keep it as cash or saved in a CD.

Researchers found that the conservative response tracked with 59% of all investors who said the financial market was a “fair” to “poor” place for average Americans to grow wealth, despite 2013’s historic stock market gains.

This view was held by 69% of investors with less than $100,000 in investable assets. Two-thirds of respondents said they were “highly knowledgeable” or “somewhat knowledgeable” about investing, about the same percentage that correctly answered that the stock market had risen in 2013, when asked about the market’s activity last year.

However, just 7% of investors said they knew the markets had an average return of 30% in 2013, based on S&P 500 returns.

Of the 37% who knew the market had risen in 2013, the majority thought it had increased only 10%, while another 17% thought it had risen 20%.

“There’s a perception gap with investors,” Nadreau said. “They said they’re pretty knowledgeable about investing, but they don’t seem to be aware of the market’s record growth over the last year and a half.”

He said investors who put $10,000 in an investment based on the S&P 500 at the beginning of this year would have gained $710, compared with much smaller returns in non-equity/fixed income investments.

“Knowledge truly is power, and in this case, security when building the American Dream.”

Advice Matters

The survey found that most investors who owned stocks were open to professional guidance.

Of the eight in 10 investors who said they owned individual stocks or mutual funds, 71% preferred consulting with someone who could give them expert or professional advice, compared with 27% who felt confident about investing in the market on their own.

Overall, 32% of investors had sought more financial advice in the last two to three years, and some 40% said they would increase the advice they sought in the next two to three years.

According to the survey, investors overwhelmingly seek advice during major changes in their life: retirement (71%), divorce (64%) and death of a close family member (52%).

Only 35% of investors said they would seek financial advice upon getting married, followed by 34% for changing jobs and 32% when everything was going well in their lives.

Investors were twice as likely to have a dedicated personal financial advisor as they were to use an online website. This was particularly true with retired investors surveyed.

Fifty-three percent said they relied more heavily on a dedicated personal financial advisor than on technology.

By contrast, 40% of non-retired investors had a personal advisor, and 24% used an online planning or investing website.

Separately, the poll found that investors with $100,000 or more of assets were likelier to rely on both advisors and technology, although 53% still relied much more heavily on a dedicated personal financial advisor compared with 23% who preferred technology.

Meanwhile, just 32% of investors with less than $100,000 in investable assets had a dedicated personal advisor, and 18% used a financial planning or investing website.

Nevertheless, 57% of U.S. investors described themselves as “very” or “somewhat comfortable” using online and mobile technology for their investing or financial advice needs.

Further, 31% of non-retirees said they expected to use more mobile and online technology for investment services in the next few years.

Wells Fargo said this topic was worth watching for future indications, as 66% of non-retirees (vs. just 34% of retirees) said they were “very” or “somewhat” comfortable using technology in conjunction with their investing or finances.

“Technology is dramatically transforming the way investors—and their advisors—approach financial planning,” said Nadreau.

“That the fastest-growing group of investors—non-retirees—is showing more signs of openness to technology is a strong indicator for the future of our industry.”

Check out Half of Households Risk Inadequate Retirement Income on ThinkAdvisor.