Recession Fears Rise to Pandemic-Level Heights

What You Need to Know

Investors' recession fears mirrors the level of concern in 2020 during the height of the pandemic, when 75% were concerned about a recession.
Advisors are encouraging investors to max out 401(k) contributions and suggesting annuities and other strategies to ward against outliving savings in retirement.
Having a plan in place can help investors feel more confident in their investment decisions, even during an extreme financial crisis.

Investors and advisors are feeling stressed by the current macroeconomic environment, and their optimism has fallen sharply as a result, according to Nationwide’s annual Advisor Authority survey, released Monday.

Only 39% of investors said they are optimistic about their 12-month financial outlook, down from 49% a year ago. Likewise, 48% of advisors and financial professionals are optimistic, down 15 percentage points from 2021.

Fifty-four percent of investors said they expect increased volatility over the next 12 months, but recession fears are 20 points higher than their volatility ones. This mirrors the level of concern in 2020 during the height of the pandemic, when 75% of investors were concerned about a recession.

Advisors and financial professionals are even more worried, with 82% concerned about a recession, compared with 77% in 2020.

Investors’ inflation concerns in the next 12 months shot up this year, as well, from 29% in 2021 to 46%. Other top financial concerns are taxes and protecting assets.

Forty percent of investors also said inflation is the leading factor that will contribute to volatility over the next 12 months.

Although more than half of investors expect increased market volatility over the coming year, these expectations are at a four-year low, according to Nationwide, dropping from 66% in 2019 to 54% in 2022.

“While it’s surprising that expectations about volatility have dropped among investors, it may indicate that they are coming to grips with the possibility that volatility is the new normal,” Mark Hackett, Nationwide’s chief of investment research, said in a statement. “While investor concerns have lessened, both volatility and inflation are likely to persist in the year ahead. Financial professionals should be talking to clients about implications for their portfolio.”

The current environment, with its rising inflation and declining investment results, has reduced confidence related to retirement. The survey found that only 47% of investors said they plan to retire about the same time as they planned, and 20% plan to retire later than planned.

Harris Poll conducted an online within the U.S. from July 27 to Aug. 16 among 506 financial advisors and 521 adult investors.

Time to Increase 401(k) Contributions?

The survey findings show that amid these macroeconomic concerns, advisors and investors have similar yet contradictory strategies for the next 12 months.

Forty-four percent of advisors and financial professionals are counseling clients to contribute more monthly or the maximum amount to 401(k)s or employer-sponsored defined contribution plans.

Forty-three percent are also managing investments more conservatively, and 33% are considering purchasing or have purchased an annuity for their clients.

Advisors’ Role

Overall, confidence in financial planning remains strong but appears to be waning, according to the survey. Most investors said having a plan for their investments helps them feel in control even if they cannot plan for everything.

They said having a plan also helps them feel more confident in their investment decisions, even during an extreme financial crisis.

Advisors and financial professionals, by comparison, are more likely to develop strategies to protect their clients against outliving savings and generate guaranteed income in retirement.

Fifty-nine percent of investors who do not work with an advisor or financial professional have a strategy in place to generate guaranteed income in retirement, compared with 85% of investors who work with an advisor.

In addition, 52% of those who do not work with an advisor or financial professional have a strategy to protect themselves against outliving their savings in retirement, compared with 85% of investors who do work with an advisor.

While investor volatility expectations are at a four-year low, the majority still have a strategy in place to protect their assets against market risk. At the same time, investors with a strategy in place are also at a four-year low at 60% in 2022.

The number of advisors with a strategy in place to protect their clients against market risk has steadily increased year-over-year, reaching a high of 93% this year.

As just 55% of investors currently work with an advisor or financial professional, advisors have an opportunity to reach and educate the remaining 45%, as well as revisit and reinforce planning strategies with their current clients.

“Investors today want to feel confident in their ability to retire, no matter what is happening in the world,” Henderson said. “This is where advisors and financial professionals can step in to create a sense of security and confidence in their clients’ long-term plans.”