Investors Seeking Loans Before Interest Rates Go Up: Wells Fargo

Investors who have benefited from low interest rates are showing signs that they may be worried about a potential rate hike. 

Half of investors say they are very or somewhat likely to take out a loan in the near future in anticipation that rates may go up, according to the third-quarter Wells Fargo/Gallup Investor and Retirement Optimism Index survey.  

In addition, the survey finds that 44% of investors say they would make major adjustments to their investment strategy if interest rates rise. 

It’s still uncertain whether a heavily contested Federal Open Market Committee meeting this week will result in a rate hike or not.  

The results of the Wells Fargo/Gallup Investor and Retirement Optimism Index, which includes a survey of 1,006 investors conducted Aug. 7-16 by telephone, was released on Tuesday morning.  

The study defines an “American investor” as an adult in a household with total savings and investments of $10,000 or more. Of those surveyed, 74% were not retired and 26% were retired. The median age of the retired investors is 70 and the non-retired is 45. 

A majority of investors have reportedly taken advantage of low interest rates. 

According to the study, nearly six in 10 investors (58%) are benefiting from lower rates. This includes by taking out a car loan (30%), refinancing an existing mortgage or home finance loan (17%), taking out a mortgage for a new home (16%), obtaining a student loan for themselves or a family member (9%), or taking out another type of loan (10%) over the past two years.  

“Investors found a variety of ways to benefit from the low interest rate environment, but this may be a good time for them to revisit their investment strategies and make sure they’re properly diversified to benefit in a rising rate environment as well,” Bob Vorlop, head of products and advice at Wells Fargo Advisors, said in a statement. “Those nearing retirement and retirees may be able to take some risk off the table in their portfolios.” 

Of the 44% of investors that would reportedly make adjustments to their investment strategy if rates rise, the most common action is buying more stocks. 

According to the survey, 30% say they would buy more stocks, while 8% say they would reduce their stock holdings.   

The survey found that about a quarter (23%) of investors would buy bonds or other fixed income investments, whereas 10% say they would sell these types of instruments. 

“In a complex market environment, interest rates changes are yet another factor that can be unsettling to investors, but one of the most important roles a financial advisor can play is to design portfolios that can meet investors’ objectives under a variety of circumstances,” Vorlop said in a statement. “That can be a tremendous source of comfort and confidence to investors,” he added.  An impending rate hike may also be the reason that two-thirds of the investors surveyed have been consciously reducing their debt.

Another reason may be that the slight majority of all investors (56%) say it is critically important for them to be debt-free in retirement, according to the survey.