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Investor optimism surges 21 points in Q1, says Wells Fargo/Gallup survey

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The Wells Fargo/Gallup Investor and Retirement Optimism Index suggests that consumer optimism is rising steadily, as the Index reached +69 in February, the highest level recorded since 2007. 

The 21-point rise since November 2014 is the biggest quarterly improvement in two years, driven by enhanced investor optimism about both their personal finances and the economy. In addition, optimism is equally high for non-retired (70) as for retired (65) investors. The survey of 1,011 investors was conducted from January 30 to February 9, 2015. The median age of the retiree is 69, and the non-retiree is 47.

Investors are aware of the drop in fuel prices since last year and estimate it’s saving them USD108 per month, on average, in recent months. The estimated monthly savings is USD68 among retirees and USD117 among non-retirees.

Most investors – 68% – say the savings is helping their household budget “a little” (41%) or “a lot” (27%), with about a third (32%) saying it has not made much difference. The impact appears greater for non-retirees, 71% of whom say it is helping them a lot or a little, vs. 58% of retirees.

Seven in 10 investors are using this savings to improve their personal balance sheet: 37% say they are using it to pay down bills, and 33% are adding the extra dollars to their savings. Just 25% say they are using the money for additional purchases. Retired investors are more likely than non-retired investors to say they are using their gas and oil savings to spend more on other things: 32% vs. 22%.

“I’m highly encouraged by the fact that we’ve seen optimism improve for the past three quarters. Renewed confidence, combined with savings from reduced gas prices, is leading individuals to either increase household savings or pay down debt – helpful strategies that can generate a greater sense of control. Whether it’s paying down debt or putting some money aside for retirement, it is a positive sign that Americans are improving their balance sheets,” says Joe Ready, director of Wells Fargo Institutional Retirement and Trust.

Nearly six in 10 investors, 58%, believe it’s a good time to invest in the financial markets, similar to the 56% saying this at the end of 2014, but up from 52% last July. This is also a switch from several quarters in 2011 and 2012 when the majority said it was not a good time to invest.

More than half of investors (56%) say they have seen a noticeable increase in their retirement account values as the stock market has increased this past year, up from 44% two years ago.

Among non-retired investors, 76% say they are “very confident” or “somewhat confident” they will have enough savings for retirement at the time they choose to retire, up from 62% recorded two years ago. However, when all investors were asked if they have “confidence in the stock market as a place to save and invest for retirement,” a minority – 40% – say they have a “great deal” or “quite a lot” of confidence, versus 60% who say only “a little” or “none at all.”

The new MyRA federal retirement savings program has been available to workers since December, allowing savers to amass USD15,000 in an account primarily invested in U.S. Treasuries. An ongoing criticism of the program has been the low interest rates it offers by virtue of relying solely on government bonds. In the survey, investors were asked which approach the federal government should emphasise to help people without access to a retirement account to start saving. More than half – 58% – say the preferable approach is to put beginning savers into Treasury bonds, with “virtually no risk of loss,” versus 25% who say that people should be encouraged to invest in stock funds that have the “potential for high returns, but could also lose principal.”

“People may have an improving outlook about investing, but when it comes to investing for retirement, there is still wariness and concern about managing their risk,” says Ready.

When investors were asked which is a better way to grow wealth, a majority – 54% – say “saving and investing in the stock market” while 41% say “through buying a home.” The preference for investing in the stock market for wealth creation is even stronger among retirees, at 61%, than among non-retirees, at 51%.

The 83% of investors who own their primary residence were asked if they plan to use their home equity as a source for retirement. Among these homeowners, 21% say they will “use some” equity, while 67% say they will not use any equity to help fund retirement.

“The data is pretty clear that tapping home equity as a retirement strategy is not a choice that a majority of investors plan on making. Saving and investing seem to be the predominant choice for retirement,” says Ready.

About three-quarters of employed investors say their current employer offers a 401(k), and of these, 89% participate in the plan. The majority of those in a 401(k) – 64% – say they can manage their plan by themselves, but 35% say they need advice from others.

A majority of 401(k) participants feel positive about the job their employer does providing them with the information they need to make informed decisions about their plan – 31% rate their experience as “excellent,” while 43% rate it as “good.” A quarter rate their employer as subpar, including 19% saying their employer does an only “fair” job, and 6% saying a “poor” job.

When asked which of five aspects of investing they most need advice on, 32% of 401(k) investors want help knowing which funds to invest in, and 29% want help knowing whether to reallocate their investments according to changing conditions. Lower on the list is deciding how much to contribute (8%), understanding the tax advantages of various plans (4%) and tapping their retirement money before retirement (1%).

“These plans are designed to be self-directed, but one out of three participants is saying ‘someone help me.’ As an industry, we must understand their needs and help provide people with useful tools and advice that ensure all investors are making the most of their plans,” says Ready.

When asked about the effectiveness of ways employers provide employees information about managing their 401(k), investors ranked the top three: one-on-one meetings with a financial professional (71%), attending a seminar or formal presentation (46%) and posting information on the company website (40%).

While employment in the United States is improving, investors do not consider all jobs to be created equally. Investors were asked if temporary or contract work positions are generally good for the economy because they are jobs or bad for the economy because they don’t offer workplace benefits. The results tilt negative, with 52% seeing the trend of jobs without benefits as bad and 41% seeing this type of employment as good.

“This tells me that people grasp the importance of benefits as part of their employment picture – and this means healthcare and retirement plans,” says Ready. “Jobs without retirement plans may cause people to miss out on an opportunity to save for retirement in a systematic way through their employer.”

About half of investors (51%) believe interest rates will go “a little” higher this year, while a third says they will “stay the same.” Relatively few think they will either go “up a lot” (5%) or go “down a little” to any degree (7%).

Asked what they would do if interest rates rose, just 23% of investors say they would be “very” (5%) or “somewhat” (18%) likely to transfer money out of the stock market and into more conservative investments like CDs. Most say they are not likely to do this, including 43% who say they are “not at all” likely to take that step.

Similarly, relatively few investors – 13% – report that the low interest rates of recent years have compelled them to invest more in the stock market than they are usually comfortable with. However, the percentage reporting this is higher among retirees (17%) than non-retirees (11%).

According to Ready: “Low interest rates may be a contributing factor driving some investors – particularly retired investors – more heavily into stocks. But the majority of investors don’t appear to expect enough of a change in rates in the near term to reallocate their investments. This could mean that they are comfortable with their risk profile and current investment allocation strategy, and thus do not feel compelled to make changes based on interest rates.”

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