Spokane Journal of Business

Investor optimism surged early this year, poll shows

Most respondents realized savings from fuel cost drop

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The Wells Fargo/Gallup Investor and Retirement Optimism Index suggests that consumer optimism is rising steadily, as the index reached plus-69 in February, the highest level recorded since 2007. 

The 21-point rise since November 2014 is the biggest three-month improvement in two years, driven by enhanced investor optimism about both their personal finances and the economy. 

In addition, optimism is nearly equally high for nonretired (plus-70) as for retired (plus-65) investors. 

The survey of just over 1,000 investors was conducted from Jan. 30 to Feb. 9, 2015. The median age of the participating retirees was 69, and the median nonretiree age was 47.

The index had a baseline score of 124 when it was established in October 1996. It peaked at plus-178 in January 2000, at the height of the dot-com boom, and it hit a low of minus-64 in February 2009.

Investors who were surveyed are aware of the drop in fuel prices since last year and estimated it has been saving them $108 per month, on average, in recent months. The estimated monthly savings is $68 among retirees and $117 among nonretirees.

Nearly 70 percent of surveyed investors said the savings is helping their household budget. The impact appears greater for nonretirees, 71 percent of whom said it is helping them a lot or a little, versus 58 percent of retirees.

Seven in 10 investors said they are using this savings to improve their personal balance sheet: 37 percent said they are using it to pay down bills, and 33 percent are adding the extra dollars to their savings. Just 25 percent said they are using the money for additional purchases. Retired investors were more likely than nonretired investors to say they are using their gas and oil savings to spend more on other things.

Joe Ready, director of Wells Fargo Institutional Retirement and Trust, says, “I’m highly encouraged by the fact that we’ve seen optimism improve for the past three quarters. Renewed confidence, combined with savings from reduced gas prices, is leading individuals to either increase household savings or pay down debt—helpful strategies that can generate a greater sense of control. Whether it’s paying down debt or putting some money aside for retirement, it is a positive sign that Americans are improving their balance sheets.”

Nearly six in 10 surveyed investors said they believe it’s a good time to invest in the financial markets, similar to the 56 percent saying this at the end of 2014, but up from 52 percent last July. This is also a switch from several quarters in 2011 and 2012 when the majority said it wasn’t a good time to invest.

More than half of investors said they have seen a noticeable increase in their retirement account values as the stock market has increased this past year, up from 44 percent two years ago.

Among nonretired investors, three-quarters said they are “very confident” or “somewhat confident” they will have enough savings for retirement at the time they choose to retire, up from 62 percent recorded two years ago. However, when all investors were asked if they have confidence in the stock market as a place to save and invest for retirement, 40 percent said they have a “great deal” or “quite a lot” of confidence, versus 60 percent who said only “a little” confidence or “none at all.”

The new MyRA federal retirement savings program has been available to workers since December, enabling savers to amass $15,000 in an account primarily invested in U.S. Treasuries. An ongoing criticism of the program has been the low interest rates it offers by virtue of relying solely on government bonds.

In the survey, investors were asked which approach the federal government should emphasize to help people without access to a retirement account to start saving. Nearly six in 10 said the preferable approach is to put beginning savers into Treasury bonds, with virtually no risk of loss.

“People may have an improving outlook about investing, but when it comes to investing for retirement, there is still wariness and concern about managing their risk,” Ready says.

Home equity


When investors were asked which is a better way to grow wealth, a majority—54 percent—said “saving and investing in the stock market” while 41 percent said “through buying a home.”  The preference for investing in the stock market for wealth creation was even stronger among retirees, at 61 percent, than among nonretirees, at 51 percent.

Just over eight in 10 investors who own their primary residence were asked if they plan to use their home equity as a source for retirement. Among these homeowners, a fifth said they will use some equity, while two-thirds said they won’t use any equity to help fund retirement.

“The data is pretty clear that tapping home equity as a retirement strategy is not a choice that a majority of investors plan on making. Saving and investing seem to be the predominant choice for retirement,” Ready says.

About three-quarters of employed investors said their current employer offers a 401(k), and of these, nearly 90 percent participate in the plan. The majority of those in a 401(k)—64 percent—said they can manage their plan by themselves, but 35 percent said they need advice from others.

A majority of 401(k) participants who participated in the survey said they feel positive about the job their employer does providing them with the information they need to make informed decisions about their plan. Three in 10 rated their experience as “excellent,” while 43 percent rated it as “good.”  A quarter rated their employer as subpar, including 19 percent who said their employer does an only “fair” job, and 6 percent saying a “poor” job.

When asked which of five aspects of investing they most need advice on, 32 percent of 401(k) investors wanted help knowing which  funds to invest in, and 29 percent wanted help knowing whether to reallocate their investments according to changing conditions. Lower on the list was deciding how much to contribute, at 8 percent; understanding the tax advantages of various plans, at 4 percent; and tapping their retirement money before retirement, at 1 percent.

“These plans are designed to be self-directed, but one out of three participants is saying, ‘Someone help me.’ As an industry, we must understand their needs and help provide people with useful tools and advice that ensure all investors are making the most of their plans,” Ready says.

Asked about the effectiveness of ways employers provide employees information about managing their 401(k), investors ranked the top three: one-on-one meetings with a financial professional, 71 percent; attending a seminar or formal presentation, 46 percent; and posting information on the company website, 40 percent.

While employment in the United States is improving, investors who were surveyed don’t consider all jobs to be created equally.  Investors were asked if temporary or contract work positions are generally good for the economy because they are jobs or bad for the economy because they don’t offer workplace benefits. The results tilt negative, with 52 percent seeing the trend of jobs without benefits as bad and 41 percent seeing this type of employment as good.

“This tells me that people grasp the importance of benefits as part of their employment picture, and this means health care and retirement plans,” Ready says. “Jobs without retirement plans may cause people to miss out on an opportunity to save for retirement in a systematic way through their employer.”

Rate increases


About half of survey respondents said they believe interest rates will go a little higher this year, while a third said they will stay the same. Relatively few think they will either go up a lot (5 percent) or go down a little (7 percent).

Asked what they would do if interest rates rose, a quarter of investors said they would be likely to transfer money out of the stock market and into more conservative investments such as certificates of deposit. Most said they aren’t likely to do that, including 43 percent who said they aren’t at all likely to take that step.

Similarly, relatively few investors—13 percent—reported that the low interest rates of recent years have compelled them to invest more in the stock market than they are usually comfortable with. However, the percentage reporting this is higher among retirees (17 percent) than nonretirees (11 percent).

 “Low interest rates may be a contributing factor driving some investors, particularly retired investors, more heavily into stocks,” Ready says. “But the majority of investors don’t appear to expect enough of a change in rates in the near term to reallocate their investments. This could mean that they are comfortable with their risk profile and current investment allocation strategy, and thus do not feel compelled to make changes based on interest rates.”

The Wells Fargo/Gallup Investor and Retirement Optimism Index, conducted by telephone, included 1,011 investors randomly selected from across the country, with a margin of sampling error of plus or minus three percentage points. 

For this study, 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 American households have at least $10,000 in savings and investments.  The sample size was comprised of 73 percent nonretired investors and 27 percent retirees.  Of total respondents, 60 percent had reported annual income of less than $90,000 and 40 percent of $90,000 or more. 

The index is an enhanced version of Gallup’s Index of Investor Optimism that provides its historical data. The median age of the nonretired investors was 47, and the median age of retirees was 69.

Wells Fargo & Co. is a nationwide financial services company with $1.7 trillion in assets. Founded in 1852 and headquartered in San Francisco, it provides banking, insurance, investments, mortgage, and consumer and commercial finance through more than 8,700 locations, 12,500 ATMs, and the Internet. The company has offices in 36 countries and was ranked No. 29 on Fortune’s 2014 rankings of America’s largest corporations. 

For more than 70 years, Gallup has provided measurement and analysis of people’s attitudes, opinions, and behavior. 

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