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Nervous? Don’t let it backfire

By Jennie L. Phipps ·
Thursday, August 7, 2014
Posted: 10 am ET

Despite more than a year of terrific equity investment returns, retired investors reported that they were increasingly pessimistic about the economy, according to a survey by financial services company Wells Fargo  in partnership with Gallup.


The Wells Fargo/Gallup Investor and Retirement Optimism Index dropped eight points in the second quarter to +29 from +37 in February. Driving this decline was a 17-point drop, from +41 to +24, in optimism among retired investors.

This negative view doesn't seem to reflect reality, since the S&P 500 Index returned 32.8 percent in 2013,  including dividends but before expenses. "We see it as a hangover from 2008," says Joe Nadreau, director of innovation and strategy for Wells Fargo Advisors.

This "hangover" has persuaded 69 percent of people with less than $100,000 in investable assets to say that the financial market is a "fair" to "poor" place for them to put their money. At the same time, 46 percent of investors, both retired and not, report that they fear they won't have enough money to carry them through retirement.

This nervousness could easily be a self-fulfilling prophecy, Nadreau says. When investors were asked what they would do if someone gave them a $10,000 windfall, 56 percent said they would put it in cash or a certificate of deposit -- not stocks.

"I understand concern about what happened in 2008, but if you look at what happened in 2013, you'd see that if you invested in the market, you would have earned more than 30 percent. But if you sat in cash on the sidelines, you earned 2 or 3 basis points. If people continue to keep a significant portion of their money in cash, their fear of running out of money in retirement will come true," Nadreau says.

Right or wrong, 67 percent of those surveyed said that they were "highly knowledgeable" or "somewhat knowledgeable" about investing. Nadreau says this apparent dichotomy could be partially the fault of the financial services industry, which hasn't embraced technology that could help educate novice investors. He predicts that within the next year, thanks to industry investments and the easing of government regulation, investors will be able to talk with advisers using video chat and other collaboration tools.

"This is where the industry is heading," he says.

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