Wells Fargo Finds Increased Optimism

Investor optimism soared in the first quarter of 2015 to +69, according to the Wells Fargo/Gallup Investor and Retirement Optimism Index, the highest level since 2007. 

The increase likely stems from a combination of greater optimism about personal finances as well as the economy, and is the biggest quarterly improvement in two years. Both non-retired and retired investors expressed higher levels of optimism. Wells Fargo uses the survey information to shape the direction of its products and services. “It gives us insight into perceptions and attitudes,” says Joe Ready, director of Wells Fargo Institutional Retirement and Trust.

A majority of 401(k) participants feel positive about the information they receive from their employers related to making informed investing/saving decisions: 31% rate the experience as “excellent,” and 43% rate it as “good.” One-quarter gave their employer a lesser rating on employee financial support, including 19% saying their employer does only a “fair” job and 6% saying a “poor” one.

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

Although workplace retirement plans are designed to be self-directed, a key takeaway for advisers is that investors need and want one-on-one help, Ready says. “People want to talk to somebody. They want professional financial help that can give them insight about their personal situations; they want someone to guide them through a thoughtful process.”

Among the most interesting points was the rise in confidence in the stock market. “There has been a shift in the percentage of those who think it is a good time to invest in general,” Ready tells PLANADVISER. “A clear optimism is showing.” Fifty-four percent of those surveyed said the stock market is a good way to grow wealth. Also noteworthy was the 41% of respondents who said buying a home is a good way to grow wealth.

Home, Sweet Home

A majority of respondents (67%) said they would not use their home to fund their 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,” Ready says. “Saving and investing seem to be the predominant choice for retirement.”

Ready says it is difficult to speculate on this reluctance but named two possibilities, perhaps in combination: the belief that equity has not risen as much as the homeowner thought, or “I don’t want to move.”

The recent drop in oil prices is a definite factor in the improved economic mood of survey respondents. Investors estimated that lower fuel prices have been saving them an average $108 per month in recent months. The estimated monthly savings is $68 among retirees and $117 among non-retirees.

Most investors (68%) say the savings is helping their household budget to some extent, with about a third (32%) saying it has not made much difference. Non-retirees are feeling a greater boost from the savings, with 71% saying it helps either a lot or a little. Only about half of retirees, on the other hand (58%), say it has made little difference.

Savings from lower fuel prices are helping to improve personal balance sheets. More than a third of investors (37%) say they are using the money to pay down bills, and 33% are putting the extra dollars into savings. Only one-quarter say they making additional purchases with the money. Retired investors (32%) are likelier than non-retired investors (22%) to say they are using their gas and oil savings to spend more on other things.

“One of the best things we can do is help people take inventory of their financial situation and finances,” Ready says. “Our industry is moving more towards a financial wellness view.”

A critical message for participants, he says, is to try to get them to find $50 or $75 to get started saving, or to increase deferrals to their retirement plan.

Finding Discretionary Funds

“We can also help with crafting a message around when people are saving money, on things like the gas savings, to help them see that while it might not have been discretionary, now they do have savings that they can use elsewhere,” Ready says.

Investors are more upbeat about the financial markets, but still cautious about stocks as a retirement investment vehicle. Nearly six in 10 investors, 58%, believe it’s a good time to invest in the financial markets, similar to the 56% who said this at the end of 2014, but up from 52% last July. The trend toward investment optimism is a definite turnaround from several quarters in 2011 and 2012, when most survey respondents said it was not a good time to invest.

More than half of investors (56%) say they have seen a noticeable increase in their retirement account values as the stock market has increased this past year, up from 44% two years ago.

Among non-retired investors, 76% say they are “very confident” or “somewhat confident” they will have enough savings for retirement at the time they choose to retire, up from 62% 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,” a minority (40%) say they have a “great deal” or “quite a lot” of confidence, versus 60% who say only “a little” or “none at all.”

An overwhelming theme of risk management is evident in the survey, Ready says. “The good news is that investors are not chasing returns,” he points out. “Hopefully, this also shows that they are heeding the messages about diversification and staying the course.”

The Wells Fargo/Gallup Investor and Retirement Optimism Index of 1,011 investors was conducted between January 30 and February 9. The median age of the retiree is 69, and the non-retiree is 47.