It has been a rocky start to 2016 for the stock market but the recent uptick in volatility has yet to have a marked effect on investor confidence. At least that is what a new poll from Gallup suggests, which found that an 81 percent majority of surveyed U.S. investors said that they have at least a “moderate tolerance” for a 5-10 percent decline in the stock market. One in four respondents even reported that they have a “high tolerance” for a significant market correction. One reason for the apparent calmness is that most Americans seem to know that retirement investing benefits from a long-term focus. Specifically, 79 percent of surveyed investors reported that they judge a stock investment’s performance over a time horizon of ten or more years, compared to just 20 percent of respondents who believe that a 12-month return is a more important metric.
Further, many investors have likely remained calm during this recent drawdown because they have learned that corrections can sometimes create excellent buying opportunities. This is evidenced by an earlier survey from Gallup which found that 25 percent of investors reacted to last August’s sharp market selloff by buying stocks at a discount, almost twice the number of respondents who reported selling stocks near those lows. Many of these investors were able to avoid panicking during the spike in volatility because they consulted with a professional financial advisor during the downturn. Specifically, 40 percent of investor respondents who talked to their advisor last August purchased stocks during the period of heightened market uncertainty, according to Gallup, while only 18 percent of those who did not consult with an advisor capitalized on the selloff.
Apart from helping Americans remain calm during market corrections, professional financial advisors can also assist in ensuring a secure retirement. For example, a new study from John Hancock found that seven in ten surveyed U.S. adults who work with a financial advisor said that they are “on track or ahead” in saving for retirement, while only a third of respondents who do not work with an advisor reported the same level of preparedness. Individuals who consult with a financial advisor were also found to be more likely to know how much they will need to save for retirement and regularly set money aside toward that goal. Moreover, people who work with a financial advisor had a higher probability of maxing out their 401(k) plan contributions and establishing an emergency savings fund to help them avoid dipping into their retirement assets early.
Sources: Gallup, John Hancock Retirement Plan ServicesPost author: Charles Couch