Retirement investors have historically low confidence in the US economy — by some measures, the lowest ever recorded.
New data from Arizent’s Retirement Advisor Confidence Index (RACI) shows that in June, the willingness of investors to stomach market losses sank to a score of 25.6. That’s not only a steep drop from May’s score of 31.0, but an all-time low for the Index, which has been gathering data for 11 years.
“Increased volatility and a bear market has shaken investor confidence,” one advisor told RACI’s anonymous survey. The index is Financial Planning's monthly barometer of business conditions for wealth managers.
The gauge’s composite score — an amalgamation of different figures that measure investor confidence — took a dive as well, from 45.2 in May to 43.7 in June. That’s not quite an all-time low, but it’s close; the lowest ever recorded was 42.5. (Composite scores above 50 indicate an increase in confidence, while scores below that reflect a decline.)
Overall, the numbers paint a grim picture of how retirement investors are feeling about the market — something numerous advisors attested to in the survey.
“They are very worried about the economy, their job safety and retiring on time,” one advisor said.
Considering the bleak economic news that came out in June, the data is perhaps not surprising. That month, U.S. stocks plunged into a bear market, high inflation picked up speed and the Federal Reserve imposed the largest interest rate hike since the 1990s.
The resulting uneasiness among investors is clear from multiple points of RACI’s data. For one, the amount of assets invested in equities sank from a score of 42 in May to 39.2 in June. That’s the lowest point since March 2020, when the country was first plunged into the COVID-19 pandemic.
“Several clients wanted to reduce stock (equity) exposure and increase fixed income exposure as they think we are heading towards or already in a recession,” one advisor said.
Similarly, the dollar amount of contributions to retirement plans sank from a score of 52.0 to 50.5, the lowest point since April 2020.
The number of retirement products sold to clients tumbled as well, from a score of 52 to 47.1. Once again, this was the lowest since April two years ago.
In their survey answers, advisors said their clients feared both inflation and a possible recession — a historically rare combination, but one that has appeared increasingly likely in recent months.
“They think we are definitely heading for a recession,” one advisor said. “They also think that the media opinion that it will be ‘short-lived’ is a false narrative.”
“Stagflation is coming,” another wrote ominously.
More than anything else, however, advisors said their clients were worried about rising prices.
“It's the awful inflation that has the most influence,” one said.
“Inflation is still the #1 concern,” another wrote.
The Fed’s attempt to combat the problem of rising consumer prices drew mixed reviews. A plurality of advisors, 44%, said their clients felt more fearful about the economy after the Fed raised interest rates. Fifty-two percent said investors were more worried than before that there will be a recession.
Even so, some advisors said they were persuading — and in some cases, convincing — their clients not to panic.
“Most clients understand they are in asset allocations appropriate for them and are holding tight,” one wrote, adding that they’re “optimistic that the markets and economy will turn around with time.”
“Clients know that this too shall pass,” another said.