A Spectrem Group white paper released Thursday shows that investors entered 2016 with a preponderance of caution and an expectation of volatility.
Spectrem said it was unlikely investors would panic absent an unexpected cataclysmic event. However, they may “stay on the sidelines” for much of the year.
The report examines monthly indexes throughout 2015 for millionaire households and for affluent households with a net worth of more than $500,000, not including primary residence. These indexes are based on research Spectrem conducts at midmonth, with a total of 8,054 respondents — an average of 671 per month.
The index is measured on a scale of -50 to +50. The sub-categories are defined as follows:
- 31 to 50 Bullish
- 11 to 30 Mildly bullish
- 10 to -10 Neutral
- -11 to -30 Mildly bearish
- -31 to -50 Bearish
In 2015, millionaire investors were generally more confident than their affluent counterparts, maintaining the same confidence level in December as they had in January.
The Millionaire Index was in “mildly bullish” double-digits for 10 of the 12 months of 2015, and ended the year at 11, only one point higher than it had been in January.
The Affluent Index began 2015 in neutral territory, at an indicator of 7, and ended in December at 3, still neutral.
Investors entered 2016 with an overall perception that they should keep their assets “on hold” and not invest in the market, researchers found.
At the same time, during 2015 some 40% invested in stock mutual funds and 35% invested in individual stocks, with millionaires being more likely than the affluent to choose stocks.
Although investors tend to retain assets in cash when their confidence declines, at the end of 2015, interest in cash investments fell even as confidence levels dropped. Spectrem suggested that investors had begun to look for buying opportunities, but lost momentum because of January’s market volatility.
The white paper said another factor that drives the investor confidence indexes is household outlook, a monthly measure of four financial factors — based on a total of household income, household assets, company health and the economy — that affect investors’ daily lives.
The household outlook for investors dropped throughout 2015, from 25.60 points to 15.30 points, mainly because of decreasing confidence in the economy.
Confidence in respondents’ own household income and company health was fairly consistent, while their outlook regarding household assets began to fall in late 2015, continuing into the new year.
The millionaire outlook posted a higher reading than the affluent outlook in 11 of the 12 months in 2015. In May, the affluent outlook hit its highest level since February 2006, driven in part by a strong jobs report issued that month.
At the end of 2015, 35% of respondents said stock market conditions were influencing their overall investment plans most, with millionaires slightly more worried than the affluent.
Retirement concerned just 16% of respondents, and the economic environment 14% of investors. The political climate worried 2%, but that figure is expected to increase during 2016.
Gender and Political Gaps
Millionaire and affluent men were more confident regarding the markets than women in each month of last year.
Spectrem said its research had consistently found that women were more thoughtful and planning oriented than men. “With that inherent thoroughness comes greater concern,” the paper said.
This gender confidence gap was further highlighted in preferences for investment strategies, with women less likely than men throughout 2015 to say they would invest in equities. At the beginning of the year, women were significantly less confident regarding household assets than men. Their confidence increased dramatically throughout the spring, and became basically equal in May at around 61 to 62 points.
The confidence levels of both men and women decreased in the second half of the year.
Political affiliation identified some of the greatest differences among investors and their attitudes, especially regarding the economy.
Analyzed by political party, the affluent index was higher for Democrats than Republicans seven of 12 months in 2015. The millionaire index was higher for Democrats 10 of the 12 months. Respondents who identified as independents were generally somewhere in the middle.
Spectrem found that political affiliation was not a significant factor in how investors said they would invest. However, in every month of 2015, the household outlook was markedly higher for respondents who identified themselves as Democrats than their Republican counterparts.
Republican affluent and millionaire respondents expressed significantly less confidence in the economy throughout the year than their Democratic counterparts.
In 10 of the 12 months, Republicans’ perception of the economy was in negative territory, while among Democrats, confidence in the economy never fell below a positive 32.
Spectrem said this was another reflection of the political climate that investors reported may influence their investment plans in 2016.
“Advisory firms would be smart to ascertain some of these attitudes to appropriately provide investment advice during a potentially volatile year,” it said.
— Check out Politics and Investing Don’t Mix on ThinkAdvisor.