On Dec. 31, 2015, the Dow Jones industrial average was 17,425.03.  Down 2.2 percent for the year, it was the worst year for the index since 2008.  2015 was marked by volatility driven by several impactful factors, including continued speculation over when the Federal Reserve would raise interest rates, falling oil prices, and the slowdown in China’s economy, the world’s second largest. This was on top of Greece’s continuing debt crisis and concerns about the European Central Bank’s stimulus plan and a slowdown in emerging markets.

In January, Spectrem Group asked Affluent investors where they believed the stock market would be in six months. The results were published in February. How did these investors do? Not bad: On June 30, 2016, the Dow closed at 17,929.99, an increase of 3 percent from the end of last year.  Of surveyed Affluent investors who profess to have the most investment knowledge, the largest percentage indicated they were not overly pessimistic or optimistic about where the market would be in six months. Thirty percent predicted the market would be within plus or minus 1 percent-5 percent of its then-current level.  Those who indicated they had the least investment knowledge were most likely to predict that the market would be down between 5 percent and 9.9 percent.  Of those who say they have some investment knowledge there was a near equal split who predicted the market would be within plus or minus 1 percent-5 percent of the Dec. 31, 2015 level (28 percent) and those who said it would be down 5 percent-9.9 percent (28 percent).

“Across all wealth levels, the majority of these investors consider themselves only ‘fairly knowledgeable’ about investing and financial products,” notes Spectrem Group president George H. Walper, Jr.  “It is incumbent on advisors to proactively communicate market trends and sudden volatility to their clients to help give them an understanding of what is happening and to answer any questions or concerns they may have.”

Affluent men and women investors were basically on the same page about where the market would be mid-year 2016. The largest percentage (28 percent) said it would be within plus or minus 1 percent-5 percent of its then-current level. Women were slightly more pessimistic than men (28 percent vs. 26 percent) in predicting it would be down 5 percent-9.9 percent and slightly more optimistic (24 percent vs. 21 percent) in forecasting an increase of 5 percent-9.9 percent.

By political party, Affluent investors who identify themselves as Republican were markedly more pessimistic in their forecasts than their Democrat and Independent counterparts with one-third predicting the market would be down 5 percent-9.9 percent. In comparison, 24 percent of Democrats and 21 percent of Independents had a similar prediction. Conversely, Democrats were more optimistic than Independents and Republicans to predict the market would gain 5 percent-9.9 percent (26 percent vs. 23 percent and 21 percent, respectively).

By the end of January, the Dow Jones industrial average was down 7.78 percent for 2016.  The Dow did rebound on the last day of trading, but as USA TODAY reported at the time, the volatile month recalled a Wall Street maxim: “As January goes, so goes the market for the rest of the year.”

Do Affluent investors agree? As part of the survey, Spectrem asked these investors to further forecast where the market would be at the end of 2016.  In this case, they indicate a more optimistic outlook. Thirty-one percent forecast the market will be up 5.5 percent-9.9 percent in 12 months. Just 22 percent made a similar prediction for their forecast of where the market would be at June 30, 2016.  

Of those who indicated a continued level of uncertainty, 23 percent said the market in 12 months would be within plus or minus 1 percent-5 percent of its then-current level. This is down five percentage points from the same six month forecast.

Only time will tell if they are correct.

Top Takeaway for Advisors

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 •     Communication from their financial advisor is key for Affluent investors. Failure to do so in a regular or timely manner is the primary reason these clients will switch advisors, according to Spectrem research. Advisors need to communicate with their clients about service expectations to determine their comfort level regarding being contacted.

•     Spectrem research finds that Affluent investors have a preference for quarterly contact, followed by monthly contact. But they appreciate pro-active contact following events of market turbulence.

•    Affluent investors indicate a higher level of long-term confidence. This is an opportunity for advisors to review asset allocation with their clients and to educate them about emotional investing.