Investor confidence has dipped in recent months due to the political climate both in the United States and abroad, according to the latest Wells Fargo/Gallup Investor and Retirement Optimism Index.
The latest index, which gauges investor optimism, now registers at +124, essentially unchanged from +126 in February. This marks the first time since the first quarter of 2016 that the index did not improve.
When asked about possible threats to the U.S. investment climate in the coming year, 75 percent of investors were very or somewhat worried about the impact of the various military and diplomatic conflicts happening around the world. The domestic political climate ranked a close second at 69 percent.
The overall performance of the economy sparked far less concern, with about 49 percent saying they are very or somewhat worried.
“While the news may be concerning to investors, we advise clients not to let those anxieties impact their investment plan because that doesn’t change the underlying positive fundamentals of the economy,” Brian Rehling, co-head of global fixed income strategy at Wells Fargo Investment Institute, said.
On interest rates, 66 percent said they are satisfied with current interest rates. Nearly seven in 10 investors (69 percent) think low interest rates are better for their financial situation than high rates.
Despite investors’ preference for low rates, two-thirds said they have not noticed any impact of higher interest rates on their finances.
“The pace at which interest rates have been rising has been so slow that investors may not feel the heat until it’s boiling,” Rehling said. “Fed rate hikes, while still slow, are starting to accelerate. In the current low-rate environment, investors may find they have taken on more credit or interest rate risk than is appropriate for their risk tolerance in an attempt to generate yield. It’s important to focus on diversifying income sources, regularly check the temperature on your risk tolerance and monitor your portfolio to make sure your risk tolerance is aligned to your financial goals.”
Further, 66 percent of investors overall said that additional interest rate hikes this year will not compel them to make any changes to their investments. However, 23 percent said they would transfer some money out of stocks and into interest-bearing accounts or investments such as CDs.
“Whatever your age, low rates can hurt savers. With rising rates, the inertia among investors to stick with their investments shows that they may be more comfortable with the risks in the stock market. However, the lack of meaningful rate and/or credit shocks in recent years may have given some investors a false sense of security,” Rehling said.
Also, 77 percent of investors feel comfortable with the amount of debt they may have accumulated over the past several years when interest rates have been low. On the flip side, 21 percent of investors said they are not comfortable with the amount of debt they may have accumulated, given rising interest rates.
“As rates continue to slowly rise, investors should carefully assess how that will impact them as a consumer (borrower) and investor (saver) — and then formulate a plan to navigate through the gradual rate rises. Scaling back spending while prioritizing higher-cost revolving debt can help lessen the impact of higher rates,” Rehling said.
The survey was conducted by telephone with 1,005 U.S. investors May 4-7, 2017. The index had a baseline score of 124 when it was established in October 1996. It peaked at +178 in January 2000 and hit a low of -64 in February 2009.