Markets, Financial Planning, Retirement

Investor Optimism Is At A 17-Year High

10/5/17 8:00 AM

iStock-456509341.jpgAmericans’ confidence in the stock market has firmed recently, according to a survey conducted by Wells Fargo and Gallup. Specifically, the duo’s “Investor and Retirement Optimism Index” rose to 138 last month, the highest reading since the third quarter of 2000. That is not too surprising since the post-election run-up in equities has continued in 2017, with every major stock market index now at or near record levels. Sixty-eight percent of surveyed investors also said that they are optimistic about the stock market's performance during the next twelve months, matching the all-time high, and 25 percent said that they are “very optimistic.” Moreover, 61 percent of respondents said that they feel now is a good time to invest in equities, up from 53 percent two years ago.


Thirty-seven percent of surveyed investors indicated that they do not believe it is currently a good time to put money into stocks, among which 52 percent said that their reluctance is due to fear of a market correction. Such concerns are understandable given the relative absence of market volatility this year in the face of elevated geopolitical uncertainty and numerous other potential headwinds for risk assets. Predicting where equities will head over a short time horizon, though, is extremely difficult if not impossible. More importantly, retirement-focused investors should not obsess over the day-to-day fluctuations in stock valuations because selloffs are far from uncommon. The S&P 500 since 1980, for instance, has experienced an average intra-year drawdown of 14.1 percent but still posted a positive annual return for 28 of the past 37 years. Even if stocks do wind up experiencing a big correction in the near-future, it could actually be healthy for the market because it would make it easier (cheaper) for individuals that remained on the sidelines (in cash) and missed out on the earlier equity run-up to finally step in and participate.


In fact, another new poll by Wells Fargo found that 27 percent of investors would view a large selloff later this year as a buying opportunity, while just 9 percent would rush for the exits. Such confidence in the market’s long-term resiliency is likely also a factor behind the substantial returns enjoyed by consistent participants in tax-advantaged 401(k) plans. Indeed, new data from the Employee Benefit Research Institute (EBRI) revealed that the average 401(k) account balance for younger (25-34), less tenured (1-4 years) workers has surged by 143.7 percent since the start of 2015, well above the 22.4 percent gain in the S&P 500 (through the end of September). Older workers (55-64) with more than 20 years of tenure saw their 401(k) balances rise by an average of “only” 29.0 percent during this same period, not surprising since these individuals tend to have much larger accounts that are less sensitive to both contribution size and market fluctuations.



Sources: Wells Fargo, Gallup, J.P. Morgan, EBRI

Post author: Charles Couch