Wells Fargo/Gallup: Do Investors See Their Financial Futures Through Rose-Colored Glasses?

According to a new Wells Fargo/Gallup survey, while individual U.S. investors remain optimistic about the economy, many say they are one emergency away from encountering expenses that could cripple their finances. Barely half of investors, 55%, describe themselves as very well prepared to deal with an unexpected $5,000 expense, while 44% are only somewhat prepared or not prepared. Most investors, 83%, feel very well prepared to deal with an unforeseen $1,000 expense, but confidence drops to 33% for a $10,000 expense.

While many of these investors have significant investments, that money isnt necessarily available for sudden expenses, particularly if it is locked in tax-deferred retirement accounts that may be subject to taxes and IRS penalties for early withdrawals.

The Investor and Retirement Optimism Index was essentially unchanged this quarter, coming in at a relatively positive 98, similar to 103 in the second quarter; however, it was a bit higher throughout most of 2017, ranging from 100 to 117. Prior to 2017, the last time the index was as high as it is now was in November 2000.

These findings are based on the third-quarter Wells Fargo/Gallup Investor and Retirement Optimism Index survey, conducted Aug. 13-20, 2018. For this survey, investors are defined as U.S. adults who have $10,000 or more invested in stocks, bonds or mutual funds.

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Im intrigued that the findings show confidence in both the personal and economic dimensions remain high yet close to half would be challenged to handle an unexpected expense of $5,000, said Dan Prebish, director of Life Event Services at Wells Fargo Advisors. Given the proportion of investors who appear to be cash-strapped and dont have detailed financial plans, I have to believe that many may see their financial futures through rose-colored glasses.

Investors Are Goal-Setters, Not Detailed Planners

  • 15% of non-retired investors appear highly proactive and disciplined “ setting specific financial goals and detailed plans to reach them. (Financial Dynamos)
  • 49% say they have specific financial goals but rely on broad strategies versus specific plans. (Financial Dabblers)
  • 36% are unanchored, saying they manage their finances as they go. (Financial Drifters)

The data suggest that Financial Dynamos benefit from their detailed planning “ they are a bit more confident than Financial Dabblers that they will have enough money to maintain their preferred lifestyle in retirement (81% vs. 72%). They are also more likely than the Dabblers to say they are very well prepared to handle an unexpected $5,000 expense (70% vs. 59%).

Very few investors seek professional advice when planning:

  • 13% handle their planning by working with a dedicated financial advisor
  • 38 % say they mostly do their own planning with occasional advice from a professional advisor
  • 42% say they do all their own planning with no professional advice
  • 7% say they do no financial planning

Do-it-yourself investors, who do all or most of their own planning, dont utilize external tools or sources:

  • 42% rely on their own knowledge or experience for financial planning
  • 20% rely on friends or family
  • Less than half utilize expert sources such as online financial tools (24%), financial publications (10%) or financial courses/videos (4%).

Investors Least Successful at Saving for Childrens Higher Education

Of five possible savings goals that non-retired investors might have, saving for a childs college education is the one they are having the most difficulty reaching. Among those focused on this goal, 27% have completed or made a lot of progress toward it. Another 35% say they have made some progress saving for a childs college; however, 38% — the highest for any goal — have made no progress at all.

Beyond buying a home, which most investors have done, investors have been the most successful at saving for a vacation (57% of those with this goal say theyve completed saving or made a lot of progress) and building a three-month emergency fund (56%).

We hear about the crippling effects of massive student loan debt, and based upon the difficulties parents are having saving for their childs education, it appears this trend will continue for the foreseeable future, said Prebish.

Investors Anticipate Making Sacrifices to Succeed Financially

The poll explored several specific sacrifices investors may have to make to improve their financial goals.

Of 11 different actions that could help non-retired investors improve their balance sheets, holding on to their cars longer than they would prefer is the most common investors foresee taking: 81% say they have already done this or are likely to in the future. Working for more years than they would prefer ranks second, at 70%.

Other strategies that majorities of non-retired investors either expect to employ in the future or already have employed are:

  • Cancelling their TV subscription (65%)
  • Cutting back sharply on their daily living expenses (62%)
  • Getting a less expensive cellphone plan (57%)
  • Cutting back on vacations (53%)
  • Staying in a job or career they don’t like (52%)

Not only does the slight majority think they will have to stay in a bad job to support their financial goals, but about half of this group (27%) says they have already done this.

Adds Prebish, We all have to make financial tradeoffs from time to time, but its disheartening to learn that one in four working investors has had to endure a bad job experience for financial reasons. Having a specific plan and building savings creates a ˜bridge that could potentially reduce negative scenarios such as this.

Four sacrifices non-retired investors dont anticipate making are downsizing to a smaller home (42%), getting a second job (32%), foregoing saving for a childs education (28%), and delaying having children or having fewer children than they would prefer (26%).

About the Wells Fargo/Gallup Investor and Retirement Optimism Index

The results of this Wells Fargo/Gallup Investor and Retirement Optimism Index are based on a Gallup Panel web study completed by 1,059 U.S. investors, aged 18 and older, from Aug. 13-20, 2018. The Gallup Panel is a probability-based longitudinal panel of U.S. adults who Gallup selects using random-digit-dial phone interviews that cover landline and cellphones. Gallup also uses address-based sampling methods to recruit Panel members. The Gallup Panel is not an opt-in panel. The sample for this study was weighted to be demographically representative of the U.S. adult population, using the most recent Current Population Survey figures. For results based on this sample, one can say that the maximum margin of sampling error is ±5.0 percentage points at the 95% confidence level. Margins of error are higher for subsamples. In addition to sampling error, question wording and practical difficulties in conducting surveys can introduce error and bias into the findings of public opinion polls.

For this study, the American investor is defined as an adult in a household with stocks, bonds or mutual funds of $10,000 or more, either in an investment account or in a self-directed IRA or 401(k) retirement account. About two in five U.S. households have at least $10,000 in such investments. The sample consists of 75% nonretirees and 25% retirees. Of total respondents, 39% reported annual incomes of less than $90,000; 61% reported $90,000 or more. The Wells Fargo/Gallup Investor and Retirement Index is an enhanced version of Gallups Index of Investor Optimism, which provides the historical trend data. The median age of the non-retired investor is 44 and the retiree is 69.

The Index of Investor Optimism has an adjusted baseline score of 100 from when it was established in October 1996. It peaked at +152 in January 2000, at the height of the dot-com boom, and hit a low of -81 in February 2009.

About Wells Fargo

Wells Fargo & Company (NYSE: WFC) is a diversified, community-based financial services company with $1.9 trillion in assets. Wells Fargos vision is to satisfy our customers financial needs and help them succeed financially. Founded in 1852 and headquartered in San Francisco, Wells Fargo provides banking, investment and mortgage products and services, as well as consumer and commercial finance, through 8,050 locations, 13,000 ATMs, the internet (wellsfargo.com) and mobile banking, and has offices in 38 countries and territories to support customers who conduct business in the global economy. With approximately 265,000 team members, Wells Fargo serves one in three households in the United States. Wells Fargo & Company was ranked No. 26 on Fortunes 2018 rankings of Americas largest corporations. News, insights and perspectives from Wells Fargo are also available at Wells Fargo Stories.

About Wells Fargo Advisors

With $1.7 trillion in client assets as of June 30, 2018, Wells Fargo Advisors provides investment advice and guidance to clients through 14,226 full-service financial advisors and referrals from 4,796 licensed bankers. This vast network of advisors, one of the nations largest, serves investors through locations in all 50 states and the District of Columbia. Wells Fargo Advisors is the trade name used by Wells Fargo Clearing Services, LLC and Wells Fargo Advisors Financial Network, LLC, Members SIPC, separate registered broker-dealers and non-bank affiliates of Wells Fargo & Company. All data includes Wells Fargo Clearing Services, LLC and Wells Fargo Advisors Financial Network, LLC, as of June 30, 2018. www.wellsfargoadvisors.com

About Gallup

Gallup delivers analytics and advice to help leaders and organizations solve their most pressing problems. Combining more than 80 years of experience with its global reach, Gallup knows more about the attitudes and behaviors of employees, customers, students and citizens than any other organization in the world.

Cautionary Statement about Forward-Looking Statements

This news release contains forward-looking statements about our future financial performance and business. Because forward-looking statements are based on our current expectations and assumptions regarding the future, they are subject to inherent risks and uncertainties. Do not unduly rely on forward-looking statements as actual results could differ materially from expectations. Forward-looking statements speak only as of the date made, and we do not undertake to update them to reflect changes or events that occur after that date. For information about factors that could cause actual results to differ materially from our expectations, refer to our reports filed with the Securities and Exchange Commission, including the Forward-Looking Statements discussion in Wells Fargos most recent Quarterly Report on Form 10-Q as well as to Wells Fargos other reports filed with the Securities and Exchange Commission, including the discussion under Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2017, available on its website at www.sec.gov.

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