Financial optimism this year is down compared with 2019, and the pandemic, economic performance and the presidential election are driving volatility, according to a new study by Nationwide.
Investor optimism nosedived to just 36% in 2020 from 55% in 2019. Likewise, advisors’ and financial professionals’ optimism fell to just 38% from 50% in 2019.
Seventy-five percent of investors expressed concern about a U.S. economic recession over the next 12 months, up from 58% last year. Likewise, 77% of advisors and financial professionals, compared with 61% in 2019, shared these concerns.
Investors’ outlook for the market is also on the downswing, with 65% saying they were worried, up from 54% last year. Seventy-four percent of advisors and financial professionals said they were concerned about an ongoing bear market over the next 12 months, compared with 61% who said this last year.
And while only 26% of investors said they felt pressure to revise their investing strategy over the next 12 months, 50% of advisors and financial professionals said they felt this pressure, with 81% of them likely to invest more conservatively and 85% likely to use a more actively managed strategy.
The Harris Poll conducted the survey from May 27 to June 25 among 1,768 advisors and financial professionals and 817 investors ages 18 to 75 and older, 558 of whom had a financial advisor and 250 did not.
This year, both investors and advisors and financial professionals continued to expect volatility to increase.
Some two-thirds of respondents in each groups said the pandemic would be the No. 1 driver of volatility over the next 12 months. Two in five said both U.S. economic performance and the presidential election would also drive volatility.
These macro factors are also taking a toll on portfolios, according to the survey. Over the next 12 months, 41% of investors said the coronavirus would most adversely affect their portfolios, followed by 15% who said the election and 9% ongoing volatility.
Advisors and financial professionals agreed, with 43% citing the pandemic, 10% each the presidential election and global instability, and 9% ongoing volatility.
About a third of investors said their two top financial concerns this year were portfolio losses due to the pandemic and protecting assets; managing volatility was a distant third.
The survey found advisors and financial professionals in sync with clients about their top three financial concerns.
The pandemic has been a financial wake-up call for investors. Many of their other leading concerns declined considerably year over year, including cost of health care, taxes and saving enough for retirement.
In the midst of a pandemic, 85% of investors said they could do all the right things to manage their finances, and still be blindsided by outside events. Likewise, 70% said the pandemic had influenced their financial decision making.
Protecting Portfolios Against Market Risk
Nationwide reported that in the face of rising uncertainty and ongoing volatility, the number of investors who said they had an advisor increased to 67% in 2020 from 51% in 2016. A third of investors said working with an advisor made them feel more confident in their financial future.
Asked to identify the most important benefit of working with an advisor when markets are volatile, investors with an advisor listed as the top reasons protecting their assets against market risk, helping them stay focused on long-term goals and helping them make more informed decisions.
Yet only 64% of investors said they had a strategy to protect their assets against market risk, compared with 91% of advisors and financial professionals who had a strategy to protect their clients’ assets against market risk.
Among those who reported having a strategy to protect assets against market risks, more than half of investors versus nearly two-thirds of advisors and financial professionals agreed that diversification was the most prevalent solution.
Meanwhile, advisors and financial professionals were much more focused than investors on using a diverse range of risk management solutions, including fixed annuities, fixed indexed annuities, noncorrelated assets, hedging strategies and liquid alternatives.
Likewise, 76% of advisors and financial professionals but only 48% of investors said they would likely choose an annuity in the next 12 months to protect against market loss as part of a holistic financial plan.
Notably, 72% of millennial investors in the survey and 61% of Gen X investors said they would likely choose an annuity in the next 12 months, compared with 36% of baby boomer investors.
Protecting Retirement Against Outliving Savings
Despite continuing pressures, investors have kept their long-term retirement goals in sight, according to the survey. Eighty-one percent of respondents in 2020 versus 70% in 2019 said they had a strategy in place to protect against outliving their savings.
Even more advisors and financial professionals said they had such a strategy.
To protect against outliving savings, investors were more likely than advisors and financial professionals to rely on Social Security, and both groups are about equally likely to rely on defined benefit plans/pensions.
At the same time, advisors and financial professionals were likelier than investors to use a more diverse range of solutions, including dividend yielding stocks, variable annuities with living benefit riders, fixed income/bond ladders and yield/income-generating ETFs.
Advisors and financial professionals are also more likely than investors to use a broad selection of annuities to protect against outliving savings.
Seventy-nine percent of advisors and financial professionals, compared with 54% of investors, said they were likely to choose an annuity in the next 12 months to protect against outliving savings as part of a holistic financial plan.
Nationwide noted that 75% of millennial investors and 69% of Gen Xers said they were likely to choose an annuity in the next 12 months, compared with only 44% of boomers.
Four out of five investors and advisors and financial professionals confirmed that they had a strategy in place to generate guaranteed income in retirement.
However, 78% of advisors and financial professionals said they would choose to protect against running out of income by incorporating solutions that offer a guaranteed stream of retirement income for life, compared with 51% of investors.
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