Last week we discussed research that indicated that 52 percent of investors believe the Democrats will win the House of Representatives in the mid-term election on November 6, 2018 and that 47 percent of investors believe that if that prediction is true, the stock market will lose its momentum and fall. But since investors anticipate this potential market volatility, will it have little to no impact on their likelihood to buy or sell investments?
Forty-four percent of investors indicate that they would make an investment allocation change should there be a major downturn in the market. But just exactly how do they define a “major downturn” in the market? And over what period of time must that downturn occur?
Forty-six percent of investors indicated that when the stock market declined in 2008 they made no change to their investment allocation. In fact, 32 percent of those who felt they were more knowledgeable about investments actually invested more. But how do they feel today?
Keep in mind that investors are not overly demanding. When asked about their annual target rate of return, 52 percent indicated they have a target rate of return of 7.9% or less. Twenty nine percent want a return of 8-11.9%. Only 6 percent demand a return over 12%.
Twenty-nine percent of investors indicate they will make an investment allocation change should the market indicators drop by 11-20% in a year. Keep in mind, however, that 28 percent indicate they won’t make a change unless the market changes more than 30 percent in a year.
At the same time there are other investors who will make changes based on significant changes in market indicators within a week. In fact 31 percent of investors will make a change if the market indicators change by 11-20% within a week. Millennials are more likely to make changes than older investors.
The market indicator that investors pay the most attention to is the Dow Jones Industrial Average (DJIA) with 41 percent identifying it as the most important indicator. Thirty one percent of investors believe that the S&P 500 is the most important (especially wealthier households).
Recent volatility has resulted in significant drops and increases in recent months. Financial advisors need to be prepared to reach out to investors should the market indicators become frenetic in the next few weeks.
© 2018 Spectrem Group