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Investor Optimism Highest Since 2007: Wells Fargo, Gallup

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The Wells Fargo/Gallup Investor and Retirement Optimism Index has surged 21 points in the past three months to its highest recorded level since 2007.

The index hit +69 in February, driven by optimism among both retired and non-retired investors about their personal finances and the economy.

The latest index, released Thursday, was based on a poll of 1,011 investors conducted in late January and early February. The median age of the retiree was 69, and of the non-retiree 47.

Wells Fargo/Gallup said in a statement that 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 negative 64 in February 2009.

Sixty-eight percent of investors said savings from the drop in fuel prices — $108 per month, on average — helped their household budget some or a lot, and a third said it did not make much difference.

Seventy-one percent of non-retirees found the savings helpful, versus 58% of retirees who did.

Seven in 10 investors said they were using this savings to improve their personal balance sheet: 37% to pay down bills and 33% to bolster their savings. Only 25% were using the money for additional purchases: 32% of retired investors versus 22% of non-retired ones.

Financial Markets Beckon

Fifty-eight percent of respondents said now was a good time to invest in the financial markets, up from 52% last July. At several points in 2011 and 2012, the majority said it was not a good time to invest, Wells Fargo/Gallup noted.

More than half of investors said they had seen a noticeable increase in their retirement account values as the stock market has increased this past year, up from 44% two years ago.

Among non-retired investors, 76% were “very confident” or “somewhat confident” they would have enough savings for retirement at the time they choose to retire, up from 62% recorded two years ago.

However, only 40% of investors said they had a “great deal” or “quite a lot” of confidence in the stock market as a place to save and invest for retirement, versus 60% who had “a little” or “none at all.”

The recently launched MyRA federal retirement savings program that allows savers to amass $15,000 in an account primarily invested in U.S. Treasuries has been criticized for the low interest rates it offers by virtue of relying solely on government bonds.

In the survey, investors were asked which approach the federal government should emphasize to help people without access to a retirement account to start saving.

Fifty-eight percent said the preferable approach was to put beginning savers into Treasury bonds, with “virtually no risk of loss,” versus 25% who said that people should be encouraged to invest in stock funds that have the “potential for high returns, but could also lose principal.”

“People may have an improving outlook about investing, but when it comes to investing for retirement, there is still wariness and concern about managing their risk,” Joe Ready, director of Wells Fargo Institutional Retirement and Trust, said in the statement.

Still, investors considered saving and investing in the stock market a better way to grow wealth than relying on home equity.

Fifty-four percent said they looked to the stock market to grow their wealth, while 41% preferred buying a home. Sixty-one percent of retirees chose the stock market approach, versus 51% of non-retirees who did so.

Among the 83% of survey participants who owned a primary residence, 21% said they would use some equity to fund retirement, while 67% said they would not use any equity to do so.

“The data is pretty clear that tapping home equity as a retirement strategy is not a choice that a majority of investors plan on making,” Ready said. “Saving and investing seem to be the predominant choice for retirement.” Employer 401(k) Plans

About three-quarters of employed investors said their current employer offered a 401(k), and 89% of these participated in the plan. The majority said they could manage their plan by themselves.

Seventy-four percent of 401(k) participants felt positive about how their employer provided the information they need to make informed decisions about their plan. A quarter criticized their employer’s performance as subpar.

As to the five aspects of investing they most wanted help on:

  • 32%, knowing which funds to invest in
  • 29%, knowing whether to reallocate their investments according to changing conditions
  • 8%, deciding how much to contribute
  • 4%, understanding the tax advantages of various plans
  • 1%, tapping their retirement money before retirement

Participants were asked how employers were most effective in providing information about managing their 401(k).

Seventy-one percent ranked one-on-one meetings with a financial professional first, while 46% said attending a seminar or formal presentation was most effective and 40% said posting information on the company website.

Slightly more than half of respondents said that the current trend of temporary or contract work positions were bad for the economy because they did not offer workplace benefits. Forty-one percent said this type of employment was good because these were jobs.

“This tells me that people grasp the importance of benefits as part of their employment picture — and this means health care and retirement plans,” Ready said. “Jobs without retirement plans may cause people to miss out on an opportunity to save for retirement in a systematic way through their employer.”

Investors’ Interest Rate Expectations

About half of investors in the survey believed interest rates would go up “a little” this year, while a third said they would “stay the same.”

Just 23% of investors said they would be likely to transfer money out of the stock market and into more conservative investments, such as CDs, if rates should rise.

Similarly, 13% reported that the low interest rates of recent years had compelled them to invest more in the stock market than they were usually comfortable with. However, the percentage reporting this was higher among retirees than non-retirees.

“Low interest rates may be a contributing factor driving some investors — particularly retired investors — more heavily into stocks,” Ready said, “but the majority of investors don’t appear to expect enough of a change in rates in the near term to reallocate their investments.

“This could mean that they are comfortable with their risk profile and current investment allocation strategy, and thus do not feel compelled to make changes based on interest rates.”