Participants are confused about fluctuations in inflation and interest rates and are often acting on flawed perceptions as opposed to hard economic data, new research shows.
The 2018 Income Diversifiers Survey polled more than 1,000 Americans ages 21 and older, who have at least $100,000 in investable assets and are working with a financial advisor.
Results “demonstrated a high level of awareness that inflation and interest rate risks might impact their investment income. However, many investors shared a different view in their understanding of how those factors might impact their investment portfolio and steps they might take in a rising rate, higher inflation environment,” according to Nuveen, the global asset management arm of TIAA.
Survey respondents acknowledge inflation and its potential to impact their retirement (68 percent), their investments (62 percent) and how they spend money today (57 percent). Even so, more than three-quarters (76 percent) admit to trusting their gut over Department of Labor statistics when making financial decisions.
At the same time, study results reveal a gap in participants’ knowledge of inflation in general. Six in 10 respondents overestimated the current rate, incorrectly saying it’s 5 percent or higher or that they’re not sure. Less than a third (32 percent) responded accurately, indicating its true value of 2 to 3 percent.
They’re not entirely in the dark, fortunately. Three out of four think inflation is currently low, and the majority (71 percent) know that retirees experience higher inflation rates than the norm.
When it comes to interest rates, participants have a slightly better grasp of reality. Most (86 percent) accurately believe they have experienced high interest rates in their lifetime.
Yet, there’s confusion about how interest rates impact finances and how one should respond. In the event of an interest rate hike, around half (52 percent) of respondents say they would likely make an investment change, while the other half (48 percent) likely wouldn’t.
Among Millennials, who are mostly (79 percent) under the impression they have experienced elevated interest level in their lifetime, eight in 10 would adjust their portfolio in the event of an increase.
“In the end, three-quarters of investors (77 percent) surveyed agree the economic situation will make investment planning more complex,” Nuveen noted in its report.
This introduces an opportunity for advisors to step up and help fill in participants about what they don’t know. What’s even better, the vast majority want guidance from a professional.
Over three-quarters (77 percent) of respondents admit that they either moderately or greatly rely on advisors to help them with retirement planning. More than nine out of 10 (93 percent) specifically want to learn about income strategies that keep up with inflation, and 56 percent would like advice about generating a steady stream of cash income while preserving capital.
Jessa Claeys is a writer, editor and graphic designer.
