These days, there are a few canaries in the coal mine of the U.S. stock market sending retirees a specific message: Get out now, while you still can.
That’s especially true among the millionaire class. According to a new survey of affluent investors from the Chicago-based Spectrem Group, investor confidence in the stock market is plummeting. The firm’s Millionaire Investor Confidence Index fell 14 points to a 38-month low.
Spectrem notes that its data roll out at a time when economic conditions look like they’re deteriorating. “This month’s survey was fielded between Jan. 15-21 amidst a backdrop of concerns about China’s economy, falling oil prices, escalating tensions in the Middle East and claims by North Korea that it had tested a hydrogen bomb,” Spectrem said.
“Global markets are continuing to experience high volatility tied to poor macroeconomic conditions and rising geopolitical uncertainty,” added George H. Walper Jr., the president of Spectrem Group. “Affluent investors tell us that stock market conditions are the factor most affecting their current investment plans, followed by retirement needs and the overall economic environment.”
Should U.S. workers saving for retirement take heed? It’s a fair question, as investors are routinely reminded by Wall Street professionals to keep their money in the financial markets all the times. A “buy and hold” strategy, after all, supposedly guarantees you won’t miss any market upticks, which happen more frequently than market downticks on a historical basis.
Whether or not that’s an ironclad truth or not, some financial experts advise investors to consider the source when given anonymous investment advice and instead stick to your own long-term savings plan.
“U.S. millionaires who may be down on the stock market are no different than average everyday Americans — all are genuinely and understandably concerned about their financial well-being and how best to navigate the challenges of the current marketplace,” said Kevin Smith, the executive vice president and a founding partner of Smith, Mayer & Liddle, a wealth advisory group in York, Pa.
Although there’s a perception that millionaires are more knowledgeable about financial markets than the typical investor, such a perception is generally not rooted in reality, Smith adds. “Wealthy investors are still subject to similar behavioral and emotional biases as other investors,” he said. “Thus, a study showing that U.S. millionaires are down on the stock market should not be given any undue weight or credibility since, based upon recent market events, a study of any investor demographic would likely reveal that they are down on the market too.”
As for any specific moves retirement savers should make, Smith reminds savers they’re on a different financial path than the millionaire class and should act accordingly. “The affluent typically have a luxury that regular Main Street retirement investors don’t have — they’ve already accumulated a sizable retirement nest egg and might prefer the safety and security of high-quality bonds to preserve and protect the level of wealth they’ve attained,” he explained. “They generally are less concerned about growth and more concerned about capital preservation.”
If periodic bouts of market volatility cause undue angst and concern, millionaires can easily reduce exposure to the stock market and transition to bonds without any serious long-term consequences to their retirement lifestyle, according to Smith. “A typical Main Street retirement investor, however, cannot generally achieve their desired retirement lifestyle without earning a long-term return well above that provided by a low-risk bond portfolio,” he said.
Some Wall Street experts say regular investors just don’t have a good feel for the financial markets right now, but long-term, their best interest may be in staying put.
“We don’t really know what the playing field is right now,” said Ilene Davis, a certified financial planner located in Cocoa, Fla. “However, I still believe that five years from now, the stock market will do better than a low-return certificate of deposit. Frankly, if the stock market collapses, so will all retirement plans, so anyone depending on investment income will be unable to pay their bills.”
“I’m advising my clients to hold their nose, don’t look at statements, and stick it out,” says Davis.
As for retirement savers themselves, the operating mode is anxiety — leaving some to take the canary’s cue and head for the exits.
“I am largely done with the stock market,” said Kenyon Meadows, a real estate investor located in Saint Simons Island, Ga. “After seeing several hundred thousands of dollars evaporate in a matter of days, both in 2008 and most recently at the beginning of this year, I’m focusing my investing efforts more into real estate.”
“I’ve put together a portfolio of modestly priced single-family rental homes, and the amount of control and consistent returns will make me do much more in that arena, as opposed to the stock market,” he adds.
In the end, who knows if the millionaires surveyed by Spectrem know what they’re talking about. It’s really what actual retirement savers like Meadows think and do, anyway.
Your best bet on that front is to consult an investment professional and weigh your own long-term savings needs and act on those needs directly.
Yes, it’s a boring plan, but it’s an effective, too, if any history is any guide. Any millionaire will tell you that.
Written by Brian O’Connell of TheStreet
(Source: TheStreet)
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