Stress up, optimism down among advisors and investors amid recession talk

Investors as well as advisors are reporting levels of stress similar to what they experienced at the height of COVID-19 due to the current macroeconomic environment. This according to the eighth-annual Advisor Authority survey conducted by the Nationwide Retirement Institute.

The survey found a sharp decline in optimism among those surveyed, with only 39% of investors saying they are optimistic about their 12-month financial outlook. That represents a 10 percentage point decrease from 49% last year. Advisors and financial professionals showed a similar drop in optimism, with only 48% saying they are optimistic, down from 63% a year ago. Survey respondents pointed to volatility, fears of recession, inflation and taxes as their top financial concerns.

While more than half of investors expect volatility to increase during the next year, concerns about a recession weighed on an even percentage (74%) of those surveyed. This mirrors levels of concern during COVID-19 when three-quarters of investors worried about a recession. Concern about a recession is even higher among advisors and financial professionals, with 82% saying they are worried about the possibility, up from 77% in 2020.

Concerns about inflation also rose sharply, with nearly half (46%) of investors saying they are concerned about inflation compared with 29% last year and 40% saying they believe inflation will be the leading factor contributing to volatility over the next year. Other investor concerns are taxes (22%) and protecting assets (19%). Although more than half of investors expect increased market volatility over the next 12 months, these expectations are at a four-year low.

“While it’s surprising that expectations about volatility have dropped among investors, it may indicate that they are coming to grips with the possibility that volatility is the new normal,” said Mark Hackett, chief of investment research. “While investor concerns have lessened, both volatility and inflation are likely to persist in the year ahead. Financial professionals should be talking to clients about implications for their portfolio.”

Among those implications is retirement timing, according to the report. With rising inflation and declining investment results, confidence related to retirement has decreased, and less than half of investors now plan to retire at about the same time as they previously planned, while 20% now think they will delay retirement.

Differing strategies among advisors, investors

The survey noted differing strategies about how to deal with these macroeconomic factors among advisors and investors. Advisors and financial professionals are encouraging clients to contribute more or even the maximum amount to 401(k) or employer-sponsored defined contribution plans. Nearly half of respondents said they are managing investments more conservatively, and one-third are considering or have purchased an annuity for their clients.

However only 20% of investors are planning to contribute more or maximize their contribution to DC plans. Only 15% are considering or have purchased an annuity and a percentage indicated they are less likely to manage investments more conservatively, according to the study.

“Investors who are anxious can be reactive and make unintentional poor financial decisions,” said Eric Henderson, president of Nationwide Annuity. “Now, more than ever, is the time to leverage the expertise of an advisor to develop a financial plan that leads to security in retirement.”

In the face of volatility, many investors indicated having a plan for their investments helps them feel in control and more confident in their investment decisions even during a financial crisis. With nearly 60% of investors not working with a financial professional, Nationwide highlighted the current economic environment as an opportunity.

“Investors today want to feel confident in their ability to retire, no matter what is happening in the world,” said Henderson “This is where advisors and financial professionals can step in to create a sense of security and confidence in their clients’ long-term plans.”

Kristen Beckman is a freelance writer based in Colorado. She previously was a writer and editor for ALM’s Retirement Advisor magazine and LifeHealthPro online channel.