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Portfolio > ETFs > Broad Market

Investor Optimism Plummets to 7-Year Low: Wells Fargo

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The coronavirus pandemic wreaked havoc with investors’ optimism in the second quarter, yet their long-term outlook remained mainly upbeat, according to the latest Wells Fargo/Gallup investor and retirement optimism index.

The index fell 134 points in the second quarter to +4, by far the biggest short-term drop since its inception and its lowest point since the 2013 fourth quarter.

The index was based on a Gallup Panel web study completed in mid-May by 1,076 U.S. adult investors. The index has an adjusted baseline score of 100 from its establishment in October 1996. It peaked at +152 in January 2000, and hit a low of -81 in February 2009.

Investors’ second-quarter optimism was down on all economic components of the index. Optimism fell most on unemployment, 34 points, and on economic growth, 26 points.

On personal components that make up the index, investors’ outlook for reaching their 12-month investment targets plunged 32 points.

At the same time, their longer-term outlook remained intact, with two-thirds of respondents saying they continued to be optimistic about reaching their five-year investment goals.

Despite the index’s unprecedented second-quarter collapse, six in 10 investors said now was a good time to invest in the financial markets.

Sixty-nine percent of investors said they felt somewhat or very confident about investing in the stock market as a way to build wealth for retirement.

The report noted that this percentage was unchanged from a year ago.

About half of investors said now was a time to hold the shares they had and wait for the market to come back, while more than a third saw it as a buying opportunity.

Only 8% of investors considered the current stock market environment a time to decrease their stock holdings in order to protect against further losses.

As for their market outlook for the rest of 2020, 51% of investors were optimistic that the worst has passed; 49% said the worst was yet to come.

“Investors are displaying remarkable resilience at an unprecedented time,” Tracie McMillion, head of global asset allocation strategy for Wells Fargo Investment Institute, said in a statement.

“Numerous trends in the poll confirm that investors view recent market disruption as episodic and temporary, not as a sign of systemic problems that will harm their investments in the long term or compel them to reallocate their assets.”

COVID-19 Repercussions 

Many investors said they had been hit by the pandemic’s effects on the job market. The survey found that as of the May, 27% of nonretired investors had suffered a loss of income or pay, 15% had been furloughed or temporarily laid off and 1% had been permanently let go.

The coronavirus has also compelled a quarter investors to assume more financial responsibility for family members. Sixteen percent said they were providing greater financial assistance to an adult child, while 7% each said they had assisted a parent or another relative.

On positive note, 64% of respondents said they had spent less money than usual since the economic shutdown. As a result, one-third said their savings had increased during this period.

Nearly half said their ability to save had not changed, and one in five reported that their savings had decreased.

Thirty-five percent of nonretired investors and 28% of retirees said the economic disruption caused by the lockdown had hurt their day-to-day financial security.

Looking ahead, 30% of employed investors said it was very or somewhat likely they would delay the age at which they retire as a result of the recent economic downturn. A similar percentage said it was likely they would work more than they had intended in their retirement.

According to the survey, the downturn has had an especially pronounced effect on employed investors in the 50-to-64 age range.

Forty percent of this group said they were very or somewhat likely to work more than they had intended in retirement as a result of the market downturn, compared with 22% of investors 18 to 49.

Older nonretired investors were also likelier than those under 50 to say they would have to retire later than they had originally planned.

“Feeling compelled to extend working years to offset losses is something many investors wrestle with — though it’s not always necessary,” Dan Barry, regional president of Wells Fargo Advisors’ gateway region, said in a statement.

“As history has shown, assets in a carefully constructed investment strategy often recover if you refrain from making emotional decisions. It’s about prioritizing what is most important, centering your investment strategy around these priorities, and making informed decisions.”

Lessons Learned

Three in four survey respondents said they were invested in the stock market in 2008, another year of significant market turmoil.

Of these, 42% said they were more concerned about the current market downturn than they were about the one in 2008, while the majority said they were less concerned or felt the same level of concern as they had 12 years ago.

At the same time, four in 10 investors, including nearly half of those who were invested in the market in 2008, said they had gotten better about shrugging off market volatility.

One in three said they had not been bothered by market volatility before, and a quarter said they were as bothered today as they were during the 2008–2009 downturn.

Sixty-four percent of investors in the survey said setting aside more money in an emergency fund was a change they would make to their financial or investing strategy as a result of the coronavirus.

Nearly half said they were very or somewhat likely to spend more time creating a long-term financial plan.

“Whether it is the coronavirus or any other catalyst, market downturns are inevitable. It is a matter of when, not if they will happen,” Barry said. “Having a comprehensive, long-term investment plan is critical to effectively weathering market downturns and preparing for the ‘what if’s’ of retirement.”

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