Unlike pre-retirees in the U.S., more people across the globe remain bullish on the current economic environment.
A new survey on individual investors by Natixis Investment Managers finds that 68% of the 8,550 people surveyed across 23 countries share an optimistic take on their finances today, with 30% who say they’re confident, 24% prepared, and 15% who even feel fortunate.
Investors say they are taking the volatile markets of 2022 as a learning lesson—86% said last year’s market was a “wake-up call,” yet others still anticipate average annual returns of 15.6% above inflation over the long-term, or 20% given the current inflation rate, Natixis said.
Still, as investors feel confident in their financial futures, Natixis warns of an impending shift in the market that may uncover gaps in investment knowledge. For example, only 9% of investors in the survey defined risk as failing to meet financial goals—more saw it as exposure to market volatility (29%), loss of assets (23%), or underperforming market benchmarks (18%). Four in ten (39%) added that because volatility is so high, they just choose to not worry about it anymore.
In fact, 59% of respondents wrongly assumed that index funds are inherently less risky than other investments; 66% believe index funds will help minimize losses; and 58% look at the broad exposure these funds provide and assume index funds give them access to the best opportunities in the market, “not realizing the extent of their exposure to the worst, potentially most rate-sensitive opportunities in the market at the same time,” reported Natixis.
“Fear and flawed assumptions are a combustible combination that can lead to irrational behavior and costly mistakes,” said Dave Goodsell, head of the Natixis Center for Investor Insights, in a statement. “In the decade between 2012 and 2021, even the least experienced investors looked smart in a market that delivered high returns with low risk and relatively little effort. The economic landscape has gone from low inflation, low rates, and low dispersion to higher inflation, rising rates, and higher dispersions. The market promises slower growth and greater risk, but investors have not meaningfully adjusted their return assumptions or reassessed where real risks lie.”
Rising costs and interest rates among largest concerns
Other findings suggest American investors aren’t worried about market risk but keeping up with rising costs. Seventy percent of respondents said their biggest financial fear is higher everyday costs, and 65% said their top investment concern is the impact of inflation on their savings and investments. While 80% recognize the need to save more money, and 52% see the need to invest more to make up for what inflation is eating away, just 28% are saving more, said Natixis. Fifty-seven percent of Americans reported saving less because of higher everyday expenses, and 61% said inflation has significantly hurt their ability to save for retirement.
Other investors noted fears over interest rates, even if they weren’t sure why they were concerned. Twenty-nine percent of investors added that investment concerns were among their top financial worries. Natixis found that recent rate hikes steered 37% of investors to add bonds to their portfolios, and 39% to invest in more next year.
However, findings showed that investors don’t understand why they’re investing in the securities. While 56% of investors claim to understand bonds, only 3% know that present bond values typically go down while future income potential goes up, found Natixis research. When asked what happens to bonds when rates risk, the largest number of investors (37%) simply replied, “I don’t know.”
Investors look to financial advisors
In its research, Natixis underscores the usefulness of financial advisors, especially as long-term return expectations remain 123% higher than what advisors are anticipating.
Investors see their worth, as well, finds the survey. Sixty-four percent of investors said that trying to navigate inflation has highlighted the importance of pursuing professional advice.
According to Natixis, the top three advisory services investors reported being most interested in are retirement income/planning (53%), overall financial planning (42%), and sustainable investments (35%). Nearly one in three (29%) do not understand how taxes affect their investments.
Sixty-eight percent of investors specifically want more information from their advisor about bond investments, found the research. While 58% think it’s more fun to invest in stocks than bonds, 46% have greater confidence in the performance of bonds than in stocks over the next year. Questions concerning bonds included: What are the tax implications of bond investments (43%); are some bonds riskier than others (41%); and how long do I need to hold onto a bond? (39%).
Among all respondents, the greatest trust exists between individuals and their financial advisor (89%) then financial advisors in general (71%), followed by family (70%) and close friends (59%). Trust drops sharply the less personal the advice source becomes. Just 15% overall and 44% of Millennials trust social media when it comes to investment decisionmaking. As artificial intelligence (AI) captures investor attention, 28% of respondents say they trust algorithms, and 60% of Millennials do.
Additional findings from the Natixis research can be found here.
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