Investor Optimism Slips in Q4

Perception is reality—at least when it comes to movements in investor optimism.

Results from the Wells Fargo/Gallup Investor and Retirement Optimism Index poll show worries over the government shutdown and other macroeconomic issues were enough to push investor confidence down in the fourth quarter, despite record-breaking market performance.

The confidence index fell eight points, to reach +25 when calculated in November, down from +33 in August, to reach the lowest level this year.

One silver lining is that investor optimism came in far higher among active investors—clocking in at +37 for those with active 401(k) or 403(b) accounts, compared with just +5 for those without these accounts.

Non-retired investors with active employer-sponsored defined contribution (DC) plans are the most optimistic group, at +41.

The results, argues Joe Ready, director of Wells Fargo Institutional Retirement and Trust, suggest a strong link between savings-oriented activity and investor optimism.

“I think the results are very surprising,” Ready tells PLANADVISER. “The gap is a full 32 points. That’s pretty dramatic. Those using a 401(k), who are not yet retired, are almost 40 points more optimistic than those without access to employer-sponsored plans.”

Wider Worries

Ready says he expected the timing of the poll—data was collected less than a month after a protracted budget stalemate closed the federal government—to cut optimism even more.

Instead, investors appear to be uneasy about a number of more general economic factors. About a third (34%) of investors cite health care costs as the biggest barrier to saving for average Americans.

A similar proportion (30%) point to unemployment or underemployment as the biggest challenge to retirement savings, and the remainder split between wage stagnation, education costs and the price of energy.

Ready says those factors help explain how investor sentiment could fall in the same quarter that the Dow Jones Industrial Average and the S&P 500 both set record highs. 

Distrust in the Markets

Other findings show about half of U.S. investors (51%) say now is a “good time to invest” in the markets, compared with 45% who say it’s not a good time.

Again, the more active investor segments reported feeling more optimistic, with 56% of those with access to a DC plan believing now is a good time to invest in the stock market.

The poll found just 37% of all investors view the stock market as an “excellent or “good” way for average workers to grow assets, whereas 62% call it “only fair” or “poor.”

“At the same time we see that 75% of people believe saving and investing for the long-term, either for retirement or other reasons, is important,” Ready says. “So clearly there is a disconnect between understanding savings needs and having confidence in the stock market.”

Solving that disconnection should be a main focus of advisers who want to deliver value to their clients, Ready says, as the stock market is the best place to grow assets in the long term.