Financial times are good in America these days, but a wise investor knows that we are only a decade removed from the bad times, namely the Great Recession.
Times were good in 2007 as well, just before the entire economic standard in America crashed and retirement account values dropped by 25 percent as the Gross Domestic Product fell by more than 5 percent. Unemployment went to double digits and trillions of dollars in stock values were lost.
Is it an advisor’s job to remind investors in today’s bull market that another recession is always possible?
Memories are often short. It can be beneficial to look back at investor attitudes following the Great Recession to get a sense for how much happier investors are today and just how depressed they were following the bursting of the housing bubble in late 2007 and the consequential dive in stock prices and the general American economy.
Spectrem research in investor attitudes and behaviors goes back to 1999, and the wealth segmentation series was in full swing in 2010, two years after the Great Recession, when all of the damage had been done but recovery was still uncertain.
In the quarterly study Financial Behaviors and the Investor’s Mindset. Investors were asked “are you worried about being able to retire when you want to?” Among Millionaire investors with a net worth between $1 million and $5 million, 47 percent said they were worried.
By 2017, with the Obama administration replaced by the Trump administration, worry among Millionaires about being able to retire in a timely fashion dropped to 30 percent. Among Ultra High Net Worth investors, the percentage of those worried about retiring went from 44 percent all the way down to 11 percent.
Have economic fortunes changed so dramatically in 10 years that worry among UHNW investors has all but disappeared? Should that worry advisors who work with those investors?
Perhaps a better indicator of how attitudes have changed since 2010 comes in the question “Are you wealthy?” In 2010, only 62 percent of UHNW investors agreed. By 2017, the number rose to 77 percent. Among Millionaires, the percentage of “yes’’ responses rose from 49 percent to almost 66 percent.
Keep in mind that, in terms of dollar value, an investor with a net worth of $5 million in 2010 was probably worth more in current dollars than an investor with a net worth of $5 million in 2017. That puts another notable spin on the research for advisors to consider.
In early February, the stock market saw a 10 percent correction from its record highs before settling again in positive territory. Recent stock market activity has helped some investors perhaps forget that the market usually has ebbs and flows, and occasionally the ebb is demonstrative.
Are your investors properly prepared for a significant ebb?
Top Takeaways for Advisors
Investor attitudes change over time – as investors age, marry, divorce, have children, see children leave the home, change jobs, become wealthier. But nothing can change investor attitudes quite as directly or distinctly as a drop in the market.
Spectrem research can compare investor attitudes from before the Great Recession, immediately after the Great Recession, and any time in the ensuing years as the economy recovered. Advisors can note to over-optimistic investors that they need to balance their desire to take advantage of current growth with investment products and services which could, if necessary, withstand another deep dive in the market.
©2018 Spectrem Group