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Portfolio > ETFs > Broad Market

Investors Say End of Bull Market Is Coming, but They Feel Fine

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U.S. investors anticipate the protracted bull market to reverse course sometime this year, but aren’t getting too worked up about it, a third-quarter telephone survey by Wells Fargo/Gallup found.

Indeed, the poll found investors fairly comfortable with the market as it lingers near historic highs. Sixty-one percent said it was a good time to invest, and only 15% agreed that “fear of a market correction is making your life stressful.”

One less blasé expert recently admitted to being very worried about the market.

The findings were part of the Wells Fargo/Gallup Investor and Retirement Optimism Index, which included 1,006 investors 18 and older. The American investor was defined as an adult in a household with total savings and investments of $10,000 or more. (About two in five U.S. households have at least $10,000 in savings and investments.) Of total respondents, 41% reported annual incomes of less than $90,000; 59% reported $90,000 or more.

Fifty-four percent of U.S. investors in the survey anticipated a market correction later in the year, down from 62% of respondents who worried about such a correction in 2013 and 58% in 2014, the previous high points.

A poll of fund managers in August showed the largest monthly increase in 14 months of investors taking out protection against a correction in equity markets.

Wells Fargo/Gallup found that concern about a market correction was not prompting most investors to proactively shield their portfolio, as only 48% said they were consulting with a financial advisor and 40% were rebalancing their portfolio in anticipation of a correction.

A mere 18% said they were selling stocks to help protect from future losses, and 20% were buying bonds to help reduce their exposure to market risk.

“One of the consequences of a protracted bull market is, unfortunately, investor complacency,” Heather Hunt-Ruddy, head of client experience and growth at Wells Fargo Advisors, said in a statement.

“With a market correction inevitable at some point, it’s important for investors to check their confidence with a comprehensive risk assessment to determine how a market correction could affect their overall investment strategies.”

How to explain investor complacency? For one thing, only 36% of investors in the survey said they had heard a lot or moderate amount about a possible correction in the news. Nearly two-thirds said they had heard little or nothing.

Beyond that, many investors appeared to have put the effects of the recession behind them. Only 26% of those polled said they had not financially recovered from the recession, down from 37% in February 2016.

Likewise, 43% said they knew someone besides themselves whose financial situation had not recovered, way down from 70% in the earlier survey.

A recent Wells Fargo study found that 20% of millennials were not invested in the stock market and did not plan to be.

Widespread Correction Pain

How would a possible market correction affect investors in the survey?

Thirteen percent said their financial situation would be hurt a lot by a downturn, and 43% said it would suffer a moderate amount.

The overall percentage of respondents who said they would suffer financially included 60% of high-asset investors, those with $100,000 or more in investments, and 48% of lower asset investors.

At the same time, 32% strongly agreed that they were prepared for a market correction, while another 48% somewhat agreed that they were prepared. One in five respondents said they were not prepared.

As in past surveys, according to Wells Fargo, a majority of investors said they would opt to ride out a market correction, while just 9% said they would exit the market.

Twenty-seven percent said they would view a correction as a buying opportunity, the highest percent ever recorded for this trend, the statement said.

“It’s noteworthy that investors say that their financial situation would be hurt by a market correction and yet they’re still not highly prepared,” Hunt-Ruddy said.

“This underscores the need for professional financial advice or, at the least, a written investment plan and regular rebalancing of one’s portfolio.”

‘Good Listener’ vs. ‘Snoozer’

Pollsters asked investor participants which one of four investing styles most closely matched their own. Fifty-five percent of investors — regardless of gender, age, retirement status or investment class — claimed to be a “good listener,” defined as one who knows where to get sound advice and usually follows it.

Twenty-four percent were self-proclaimed “snoozers,” who said they rarely looked at their portfolio. This group included 26% of non-retirees (69% of poll participants), compared with 18% of retirees.

In addition, 33% of investors with less than $100,000 invested were snoozers, compared with 19% of those with $100,000 or more.

Just 10% of respondents considered themselves “pros” who did their own research and felt confident in their abilities, while 8% admitted they were “instinctive investors” who mostly winged it.

Even though respondents recognized that they were not investing pros, only 49% said they were most likely to seek professional financial advice in a market correction.

Thirty-five percent said they would rely on their own knowledge or research, while 13% would turn to a trusted friend or family member and just 1% would rely on financial news commentators.

Rebalancing Bugbear

The poll turned up other risks to investors’ ability to weather a correction. Just 28% of respondents described their portfolio as highly diversified. Another 48% said it was somewhat diversified, while 21% said it was not very diversified or not diversified at all.

According to Wells Fargo, rebalancing is another way to maximize gains in a portfolio, and can be especially important leading up to a correction.

Yet, only 46% of investors surveyed said they rebalanced their portfolio at least annually; 21% did it less often and 29% never did it.

Three in 10 investors said they would rather be stuck in traffic for an hour than rebalance their portfolio.

“In my view, diversification is the hallmark of savvy investing and one of the most important ways to weather a market correction,” Hunt-Ruddy said. “It’s concerning that more investors are not taking advantage of diversification and rebalancing of their portfolios.”

The poll included two questions that tested investors’ basic knowledge about the markets. Most investors answered correctly on at least one, but only 46% answered both questions correctly.

Asked whether riskier investments tend to provide either higher or lower return potential over time than investments with less risk, 70% of investors correctly answered that riskier investments tended to provide higher potential returns.

However, 21% said the opposite was true, 5% said it depends and 4% were not sure.

And when asked which of four types of investments had provided the best returns on average over the past 20 years, 64% correctly identified stocks.

The most common incorrect answer was gold, followed by bonds and CDs.

“With just 46% of investors answering both of these fundamental investing questions correctly, the remaining 54% may be ill-equipped to be managing their own investments without professional advice,” Hunt-Reddy said. “This underscores the need for financial advisors to be consistently helping investors understand the market as well as their own portfolio.”

Still Risk Averse

Finally, three different questions on the survey showed that although investors did not fear a correction, aversion to market losses remained an important part of their psychology.

Sixty-two percent of respondents said fear of suffering big losses had a greater influence on their investing decisions than the prospect of earning big gains.

Forty-four percent reported that they had savings they had not invested because of concern about the market.

Sixty-three percent of investors said they could tolerate market downturns very or somewhat well, while 35% said they had little or no tolerance for significant downturns.

— Check out Don’t Manage Money Naked on ThinkAdvisor.


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