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Wells Fargo/Gallup: Investor Optimism Highest Since 2007

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The Wells Fargo/Gallup Investor and Retirement Optimism Index jumped to +46 in the third quarter, its highest level in seven years. The index is up 17 points from the second quarter’s +29, with most of the gains stemming from investors’ heightened optimism about economic growth and the labor market. While the optimism index is at its highest point since December 2007, it remains well below the pre-2008 recession 12-year average of just under +100.

Optimism among non-retired investors jumped almost 20 points to +50 while the optimism of retired investors rose 11 points to +35. The Wells Fargo/Gallup quarterly survey measures the perceptions of U.S. investors with $10,000 or more in investable assets; results are based on phone interviews with 1,011 investors, aged 18 and older, from Aug. 15-24.

“Investors are saying they’re more optimistic about the economy and the job market. But non-retirees worry about their ability to earn more in their lifetime, and they are skeptical the stock market is the place for them to grow their savings,” said Karen Wimbish, director of Retail Retirement at Wells Fargo. “Clearly, average investors have not forgotten their recession experiences.”

Investors Tread Water Financially and Feel the Effects of Inflation

Looking to the future, the majority of non-retired investors expect their income to be stagnant: 56 percent say they do not foresee a time when “their income will be significantly higher than it is today” as compared to 42 percent who do foresee potential for growth in income.

Non-retirees with $100,000 or more in assets are especially pessimistic about the prospect of earning more: 61 percent say they do not foresee a time when their income will be significantly higher than it is today, compared with 51 percent of investors who have less than $100,000 in assets.

“Investors with higher assets appear to feel as if they’ve hit a ceiling. They have done well, but don’t see opportunity for continued income gains in the future,” Wimbish said.

When asked how their finances today compare to five years ago, a majority (58%) say they are doing “about the same” (34%) or “worse” (24%) than five years ago, while 42 percent say they are “doing better.” Similarly, just 37 percent say they are saving and investing more money in recent months than they did prior to the recession. A majority (63%) says they are saving “about the same” (34%) or “less” (29%). These figures are essentially unchanged from two years ago, indicating that investors have not been able to make much financial headway in the economic recovery.

When asked directly about the impact the 2008 recession has had on their finances, nearly half (46%) say they are still feeling the effects of the recession “a lot” (19%) or a “fair amount” (27%). Another 31% only feel its impact “a little,” while 22 percent say “not at all.”

In the midst of the national conversation about wage stagnation, half of investors (51%) think the pressure on American families’ ability to save today is due to rising prices caused by inflation, whereas about four in 10 (37%) say the pressure is caused by lack of wage growth or stagnation. Nine percent of investors say the pressure is caused by a combination of the two factors.

Caution Towards Stock Market Deemed “Wise” by Majority

A new Wells Fargo/Gallup question this quarter asked investors whether they think caution toward investing in the stock market is “wise because it protects people from possible market losses,” or “unwise because it prevents people from realizing significant market gains.” Sixty percent of all investors say such caution is “wise” while 37 percent call it “unwise, because it prevents investors from realizing significant market gains.”

In the poll, 68 percent of investors say they “actively choose stocks for their long-term investment accounts,” but almost a third (29%), say they “consciously avoid stocks in long-term investment accounts.” When respondents are divided between those with $100,000 or more in assets and those with less, 42 percent of those with less than $100,000 in assets say they “consciously avoid stocks in long-term investment accounts,” versus 20 percent of those with more than $100,000 in assets.

Of the 29 percent of all investors who say they consciously avoid stocks, less than half (41%) feel confident they can reach their financial goals without stock market exposure. The majority (56%), say they are not confident they can reach their financial goals without taking on stock market risk, but they still think it’s better to avoid that risk.

“The fact that nearly seven out of ten say they choose stocks for their long term investing is a good strategy for growing assets over time, and yet it’s noteworthy that nearly a third actively choose to avoid stocks for long term accounts. And, this active avoidance is even more pronounced for people with fewer assets – these investors could stand to gain in the market through a long-term, gradual investing strategy and they seem to know it but they think avoiding risk is more important,” said Wimbish.

While most investors say they actively choose to include stocks in their long-term investment accounts, they may not be allocating enough to stocks. On average, investors say that 38 percent of their retirement savings are invested in the stock market. Naturally, this is lower among retirees, at 33 percent, but not much lower than among non-retirees, who say they have 40 percent invested in stocks.

Relatedly, in sharp contrast to the common recommendation that investors’ scale their exposure to the stock market by age, the survey finds little difference in the average percentage of retirement savings that investors of various ages say they have invested in the stock market. This average is 33 percent among all retirees, 39 percent among non-retirees aged 18 to 49, and 41 percent among non-retirees aged 50 to 64.

Retirement Confidence Hinges on Social Security

Taking their savings and Social Security income into consideration, a majority (69%) of investors say they are “highly” or “somewhat” confident they will have enough money to maintain their desired lifestyle throughout their retirement years.

However, nearly half (46%) are “very” or “somewhat” worried about outliving their savings, including 50 percent of non-retirees and 36 percent of retirees. Retirees who run out of money could become entirely dependent on their Social Security checks.

“Clearly Social Security plays a key role in thinking about retirement income, and concerns about the government’s ability to address the system’s financial problems exist for both retirees and non-retirees,” said Wimbish.

Six in 10 (58%) don’t think federal lawmakers will address the financial problems with Social Security in time to preserve the system for future retirees. Two-thirds of younger investors (67%), those under age 50, are especially pessimistic, saying lawmakers will not fix the system. These same investors are also much more doubtful than older ones that they will ultimately receive their full or even slightly reduced benefits in retirement. A little more than a third (38%) of investors between the ages 18 to 49 believe they will get most or all of the benefits due to them under the current system, compared to 71 percent of those between the ages 50 and 64, and 73 percent among those 65 and older.

Despite these divergent perceptions about whether Social Security will be there for them in retirement, non-retirees on average expect Social Security to account for 26 percent of their annual retirement income, while retirees, on average, report that it currently accounts for 30 percent of their retirement funding.

Read a blog post by Karen Wimbish: Investor optimism up, but market skepticism still a drag

About the Wells Fargo/Gallup Investor and Retirement Optimism Index

These findings are part of the Wells Fargo/Gallup Investor and Retirement Optimism Index, which was conducted Aug. 15-24, 2014, by telephone. The Index includes 1,011 investors randomly selected from across the country with a margin of sampling error of +/- three percentage points. For this study, the American investor is defined as an adult in a household with total savings and investments of $10,000 or more. About two in five American households have at least $10,000 in savings and investments. Seventy-three percent of the sample is non-retirees and 27% retirees. Of total respondents, 58% reported an annual income of less than $90,000 and 42% of $90,000 or more. The Wells Fargo/Gallup Investor and Retirement Index is an enhanced version of Gallup’s Index of Investor Optimism that provides its historical data. The median age of the non-retired investor is 47 and the retiree is 69.

The Index had a baseline score of 124 when it was established in October 1996. It peaked at 178 in January 2000, at the height of the dot-com boom, and hit a low of negative 64 in February 2009.

About Wells Fargo & Company (Twitter @WellsFargo)

Wells Fargo & Company (NYSE:WFC) is a nationwide, diversified, community-based financial services company with $1.6 trillion in assets. Founded in 1852 and headquartered in San Francisco, Wells Fargo provides banking, insurance, investments, mortgage, and consumer and commercial finance through more than 9,000 locations, 12,500 ATMs, and the Internet (wellsfargo.com), and has offices in 36 countries to support customers who conduct business in the global economy. With approximately 265,000 team members, Wells Fargo serves one in three households in the United States. Wells Fargo & Company was ranked No. 29 on Fortune’s 2014 rankings of America’s largest corporations. Wells Fargo’s vision is to satisfy all our customers’ financial needs and help them succeed financially. Wells Fargo perspectives are also available at Wells Fargo Blogs and Wells Fargo Stories.

About Gallup

For more than 70 years, Gallup has been a recognized leader in the measurement and analysis of people’s attitudes, opinions, and behavior. While best known for the Gallup Poll, founded in 1935, Gallup’s current activities consist largely of providing marketing and management research, advisory services and education to the world’s largest corporations and institutions.

Note: Complete survey results and a chart showing the index movement are available upon request.

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