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Financial Health
June 24, 2020

How investors are maintaining resilience despite disruptions

Results of the latest Wells Fargo/Gallup Investor and Retirement Optimism Index indicate resilience and confidence in long-term planning.

Investor confidence saw the most dramatic drop on record between the first and second quarter of 2020 due to unemployment and economic growth forecasts amid the pandemic. Given the numbers, it is hardly surprising that the first reading of investor sentiment since the recent market volatility shows investor confidence in market conditions down sharply.

What is surprising, strategists say, is that investors’ fundamental confidence in the market appears intact when looking forward to five-year goals and retirement.

“It’s actually positive that investors are taking that longer term view and not yielding to their emotions,” said Tracie McMillion, head of Global Asset Allocation Strategy for Wells Fargo Investment Institute. “Oftentimes when fear takes over, that can cause regret when the markets recover.”

The long-term confidence trend, strategists say, reveals that the pandemic-related downturn is being viewed more as a temporary setback than a permanent one.

The most recent Wells Fargo/Gallup Investor and Retirement Optimism Index provides insight into how investors are maintaining confidence through resilience. More than 1,000 U.S. investors over the age of 18, with a minimum of $10,000 of investable assets, took part in the survey.

Learning from the past

Many people who are investing now have some memory of the Great Recession of 2008 and the significant market impacts of that period.

When asked about current levels of concern with the market in mid-May, less than half of investors surveyed who invested in 2008 said they were more concerned about this downturn than the one that accompanied the financial crisis.

“The 2008–2009 downturn may have helped strengthen investors’ nerves,” said Wells Fargo Advisors Regional President Dan Barry.

“It seems like investors have reacted to this downturn as if it were a natural disaster, where economic activity slows dramatically, and then it tends to pick back up to previous levels relatively soon after the shock,” McMillion said.

A line graph titled ‘Wells Fargo/Gallup Investor and Retirement Optimism Index’ shows index scores from February 2015 Q1 to May 2020 Q2. In February 2020 Q1, the overall index score reached 138 before sharply declining to 4 in May 2020 Q2.
U.S. investor optimism tumbled in the second quarter amid mounting economic fallout from COVID-19 — dropping to its lowest point in seven years.

The intervention of the U.S. government in the markets seemed to give the pandemic-related market downturn a different feel for investors.

“The quick action of the Fed and the U.S. government helped put a floor under financial markets very early in the downturn this time around,” McMillion said.

Rebalancing

With the knowledge gained from experience from the 2008 downturn, investors are also reacting differently to the current market shutdown.

The survey notes strong investor interest in the opportunities presented by the lower prices on some equities.

“Despite this quarter’s unprecedented drop in the investor index, six in 10 investors continue to say now is a good time to invest in the financial markets,” Barry said. “In fact, approximately a third, or 35%, of investors view this as a buying opportunity.”

“Many investors viewed the downturn as an opportunity to purchase more equities while they were on sale, or at least as an opportunity to rebalance back to their target allocations,” McMillion said.

Confidence in the short-term outlook, however, was not so rosy, investors revealed. Overall, about a third (32%) of all investors report that the economic disruption caused by the pandemic has had a negative impact on their day-to-day financial security — with 27% of nonretirees reporting lost income or pay.

One in four investors also reported that they are now providing greater financial assistance to family members such as parents and adult children.

Forty-nine percent said that when looking ahead to the next six months of 2020, they feel “the worst is yet to come.”

Planning, with the long view

Although many investors are capitalizing on present opportunities in the market, saving and planning are the most common themes. 

“Our research has shown that those investors who have a plan are more successful in reaching their financial goals,” McMillion said.

Most investors (64%) say they will respond to the current market environment by setting aside more money in an emergency fund, and nearly half say they are very or somewhat likely to spend more time creating a long-term financial plan.  

“Financial advisors see that investors are being stretched to make their dollars work harder and last longer than ever before,” Barry said. “That is why we are working with clients to help them stress test portfolios, help identify gaps on the front end, then proactively work toward a solution.” 

Looking ahead to retirement, nearly a third of employed investors say it’s very or somewhat likely now that they will delay their retirement age as a result of the recent economic downturn.

“The impact of the downturn has been especially pronounced on employed investors who are closer to retirement age, those aged 50 to 64, with 40% believing they will have to work longer,” Barry said. 

“Younger investors likely felt that they had time to make up the deficit,” McMillion said.

With an eye for the future, most investors (64%) are now spending less money, and a third say their savings have increased.

“Having specific dollars allocated for the ‘what ifs’ can help give investors peace of mind as they fund their futures,” Barry said. 


About the Wells Fargo/Gallup Investor and Retirement Optimism Index

The results of this Wells Fargo/Gallup Investor and Retirement Optimism Index are based on a Gallup Panel web study completed by 1,076 U.S. investors, aged 18 and older, from May 11-17, 2020. The Gallup Panel is a probability-based longitudinal panel of U.S. adults who Gallup selects using random-digit-dial phone interviews that cover landline and cellphones. Gallup also uses address-based sampling methods to recruit Panel members. The Gallup Panel is not an opt-in panel. The sample for this study was weighted to be demographically representative of the U.S. adult population, using the most recent Current Population Survey figures. For results based on this sample, one can say that the maximum margin of sampling error is ±5 percentage points at the 95% confidence level. Margins of error are higher for subsamples.

In addition to sampling error, question wording and practical difficulties in conducting surveys can introduce error and bias into the findings of public opinion polls.

For this study, the American investor is defined as an adult in a household with stocks, bonds, or mutual funds of $10,000 or more, either in an investment account or in a self-directed IRA or 401(k) retirement account. About two in five U.S. households have at least $10,000 in such investments. The sample consists of 67% nonretirees and 33% retirees. Of total respondents, 40% reported annual incomes of less than $90,000; 60% reported $90,000 or more. The median age of the nonretired investor is 45 and the retiree is 69.

The Wells Fargo/Gallup Investor and Retirement Index is an enhanced version of Gallup’s Index of Investor Optimism, which provides the historical trend data. The Index of Investor and Retirement Optimism has an adjusted baseline score of 100 from when it was established in October 1996. It peaked at +152 in January 2000, at the height of the dot-com boom, and hit a low of -81 in February 2009.

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Wells Fargo Advisors is a trade name used by Wells Fargo Clearing Services, LLC, Member SIPC, a registered broker-dealer and non-bank affiliate of Wells Fargo & Company.

Wells Fargo Investment Institute, Inc. is a registered investment adviser and wholly-owned subsidiary of Wells Fargo Bank, N.A., a bank affiliate of Wells Fargo & Company. CAR-0620-03625

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