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Investors More Confident but See Stagnation Ahead

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Heightened optimism about economic growth and the labor market pushed U.S. investor confidence in the third quarter to its highest level since December 2007, according to a survey released Wednesday.

The Wells Fargo/Gallup Investor and Retirement Optimism Index rose to +46, up 17 points from the second quarter.

Still, the index lags the pre-2008 recession 12-year average of just under +100, Wells Fargo said in a statement.

The quarterly survey measures the perceptions of U.S. investors with $10,000 or more in investable assets. The new results were based on telephone interviews in mid-August with 1,011 investors 18 and older.

Some 40% of households surveyed had at least $10,000 in savings and investments. Twenty-seven percent of respondents were retired. Of total respondents, 58% reported an annual income of less than $90,000 and 42% of $90,000 or more.

‘As If They’ve Hit a Ceiling’

Fifty-six percent of non-retired investors in the survey could not foresee a time when their income would be significantly higher than it was today, compared with 42% who anticipated growth in income.

Non-retirees with $100,000 or more in assets were especially pessimistic about the prospect of earning more: 61% versus 51% of investors with less than $100,000 in assets.

“Investors with higher assets appear to feel as if they’ve hit a ceiling,” Karen Wimbish, director of retail retirement at Wells Fargo, said in a statement. “They have done well, but don’t see opportunity for continued income gains in the future.”

When asked how their finances today compared with five years ago, 34% of respondents said they were doing about the same and 24% said they were doing worse than five years ago, while 42% say they were doing better.

Just 37% said they were saving and investing more money in recent months than they had done before the recession, with the majority saving about the same or less.

These figures were essentially unchanged from two years ago, Wells Fargo said, indicating that investors had been unable to make much financial headway in the economic recovery.

When asked directly about the effect the 2008 recession on their finances, nearly half said they were still feeling the effects of the recession “a lot” or a “fair amount.”

Fifty-one percent of respondents thought the pressure on American families’ ability to save today was due to rising prices caused by inflation, whereas 37% said the pressure came from lack of wage growth or stagnation.

Nine percent of investors said the pressure is caused by a combination of the two factors.

Better Safe Than Sorry

Wells Fargo/Gallup asked respondents a new question this quarter: whether they thought caution toward investing in the stock market was “wise because it protects people from possible market losses,” or “unwise because it prevents people from realizing significant market gains.”

Sixty percent of all investors said such caution is wise, while 37% called it unwise because it prevented investors from realizing significant market gains.In the poll, 68% said they actively chose stocks for their long-term investment accounts, while 29% said they consciously avoided doing so.

Of the investors who consciously avoided stocks, 41% felt confident they could reach their financial goals without stock market exposure.

However, 56% said they were not confident they could reach their financial goals without taking on stock market risk, but still thought it was better to avoid that risk.

Wimbish noted that active avoidance of stocks for long-term accounts was more pronounced for people with fewer assets. “These investors could stand to gain in the market through a long-term, gradual investing strategy and they seem to know it but they think avoiding risk is more important.”

Although most respondents included stocks in their long-term investment accounts, they may not be allocating enough to stocks, the survey found. On average, investors said they put 38% of their retirement savings in the stock market — lower at 33% among retirees and 40% among non-retirees.

The survey found little difference in the average percentage of retirement savings that investors of various ages said they had invested in the stock market: an average 33% among all retirees, 39% among non-retirees aged 18 to 49 and 41% among non-retirees aged 50 to 64.

Social Security Conundrum

Sixty-nine percent of respondents said they were highly or somewhat confident they would have enough savings and Social Security income to maintain their desired lifestyle throughout their retirement years.

However, 50% of non-retirees and 36% of retirees were very or somewhat worried about outliving their savings. Retirees who run out of money could become entirely dependent on their Social Security checks, Wells Fargo noted.

Fifty-eight percent of respondents did not think federal lawmakers would address the financial problems with Social Security in time to preserve the system for future retirees.

Younger investors were especially pessimistic about prospects for fixing the system, and were much more doubtful than older ones that they would ultimately receive their full or even slightly reduced benefits in retirement.

Despite these divergent perceptions about whether they would receive Social Security benefits in retirement, non-retirees on average expected Social Security to account for 26% of their annual retirement income, while retiree reported that it currently accounted for 30% on average of their retirement funding.

Check out Investor Optimism Falls on Retirees’ Worries on ThinkAdvisor.


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