Investors: Low Rates Useful, Debt Acceptable, SSI Benefits are Unlikely

by devteam September 16th, 2015 | Share

Low interest rates are typically thought of as advantageousrnto borrowers but not so good, perhaps even harmful to investors.  The Wells Fargo/Gallup third quarter Investor and Retirement Optimism Indexrnsurvey however found that investors can benefit from low rates and indeed have donernso in recent years.  </p

The survey wasrnconducted in August among 1,006 U.S. investors, both retired (with a median agernof 70) and non-retired (median age 45). rnA majority of respondents (58 percent) indicated they have taken advantagernof low rates over the previous two years. rnThirty percent have taken out a car loan, 17 percent a home financernloan, and 16 percent a mortgage for a new home. rnSmaller numbers have taken out a student loan for themselves or a familyrnmember (9 percent) or some other type of loan (10 percent.)  Further, half of those surveyed said they arernsomewhat or very likely to take out a loan in the near future in anticipationrnof rising rates.</p

“Investors found a variety of ways tornbenefit from the low interest rate environment, but this may be a good time forrnthem to revisit their investment strategies and make sure they’re properlyrndiversified to benefit in a rising rate environment as well,” Bob Vorlop, Headrnof Products and Advice at Wells Fargo Advisors said. “Those nearing retirementrnand retirees may be able to take some risk off the table in their portfolios.”</p

Forty-four percent of respondentsrnindicate rising rates would cause them to make major adjustments to theirrninvestment strategy.   The most common response, from 30 percent, was tornbuy more stocks while 23 percent would buy bonds or other fixed incomerninvestments.  Only 8 percent could reducernstock ownership and 10 percent would sell bond type investments. </p

“In a complex market environment,rninterest rates changes are yet another factor that can be unsettling torninvestors, but one of the most important roles a financial advisor can play isrnto design portfolios that can meet investors’ objectives under a variety ofrncircumstances,” Vorlop said. “That can be a tremendous source of comfort andrnconfidence to investors.” </p

The Wells Fargo/Gallup Investor andrnRetirement Optimism Index had started to slip even before the recent volatilityrnin the stock market.  Investor confidencernas measured by the index slipped from a seven year high of 70 in the secondrnquarter to 58.  Most of the drop was onrnthe part of non -retirees; their score was down 17 points to 53 versus 70 inrnMay.  Wells Fargo said the decline was driven more by mounting concernsrnabout the economy – particularly the stock market and inflation – rather than byrninvestors’ inability to reach personal financial goals. Retiree optimism heldrnsteady at 70, similar to 67 in May.</p

“While investors couldn’t havernpredicted the timing of the market volatility, the wide market swings in laternAugust underscored the importance of having  a diversified portfolio thatrnhelps to shield them from the rollercoaster rides that can occur in the stockrnmarket from time to time,” added Vorlop.</p

Many investors were caught off guard byrnthe recent slide in stock prices.  Priorrnto last month’s volatility investors generally felt the market would eitherrncontinue to go up (30%) or hold steady (41%); only 26% expected it to startrngoing down.  Additionally, more than half of investors, (53%) said it wasrna good time to invest in the stock market and 41% of those believed the marketrnwould continue to rise. On the flip side, 41% of investors thought it was a badrntime to invest, most citing market volatility.</p

When investors were asked aboutrnspecific issues that could affect the investment climate in the U.S., thernissues most likely to be seen as very harmful were taxes (46%), unemploymentrn(43%), and the threat of cyberattacks (42%). Only 20% of investors in Augustrnbelieved China’s economic slowdown was hurting the investment climate a lotrnwhile 42% said it was hurting it a little.</p

Thirty-six percent of non-retiredrninvestors say they have a written financial plan, and 45% of those are highlyrnconfident that their plan is adequately designed to meet their financial goals.rnSlightly more retired investors have a written plan (45%) and 53% are highlyrnconfident it is adequately designed to achieve their financial goals. More thanrnhalf of non-retired investors with a written plan (56%) and 44% of retiredrninvestors with a written plan say their plan includes debt management and two-thirdsrnof all investors have been consciously reducing their debt.</p

Three-quarters of respondents – 83 percentrnof non-retired and 54 percent of retired investors – have some type of debt andrnamong those nearly half (46%) say the amount of debt they are carrying hasrndecreased in the past two years, while 31% say it has increased and 23%, sayrntheir debt load has stayed the same. </p

A slight majority of all investorsrn(56%) say it is critically important for them to be debt-free in retirement.rnAnother 36% say this is important but not critical. The slight majority (55%)rnalso believe it is “very possible” for them to be debt-free in retirement; 37%rnsay it is somewhat possible and 8% not possible.</p

Still, the vast majority of investors,rn70 percent, see debt as necessary and acceptable if used sparingly and 14rnpercent view it as a useful tool for leveraging.  Investors with $100,000 or more in assets werernmuch more likely than lower asset investors to view debt as a powerful tool,rn20% vs. 6%.</p

Non-retired investors are generallyrndoubtful they will receive their full benefit from Social Security when theyrnretire: 52% say it is not too or not at all likely the system will be able tornpay them their full benefit.  Just 15%rnbelieve it is very likely. As a result only 26 percent expect Social Securityrnto be a major source of income when they retire. Fifty-eight percent say itrnwill be a minor income source and 14% not a source at all. This contrastsrnsharply with current retirees, 42% of whom describe their Social Securityrnbenefit as a major income source and 37% as a minor source.</p

For this study, the American investorrnis defined as an adult in a household with total savings and investments ofrn$10,000 or more. About two in five American households have at least $10,000 inrnsavings and investments.  The sample size is comprised of 74% non-retiredrnand 26% retirees.  Of total respondents, 45% reported annual income ofrnless than $90,000 and 55% of $90,000 or more. The Index had a baseline score ofrn124 when it was established in October 1996. It peaked at 178 in January 2000,rnat the height of the dot-com boom, and hit a low of negative 64 in Februaryrn2009.

All Content Copyright © 2003 – 2009 Brown House Media, Inc. All Rights Reserved.nReproduction in any form without permission of is prohibited.

About the Author


Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, is a PASBA member accountant located in Londonderry, New Hampshire.

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