The Wells Fargo/Gallup Investor and Retirement Optimism Index fell to +26, down 16 points from +42 in the fourth quarter of 2020. This reversed much of the improvement seen in the fourth quarter as the markets surged following positive news about COVID-19 vaccine trials.
The dip in optimism this quarter was in part because of investors being less optimistic about their household income. Within the index, investors’ 12-month outlook for inflation dropped the most this quarter. Slight declines were also seen in their positive forecasts for unemployment, the stock market and economic growth. At the same time, investors’ outlooks for reaching their investment goals were steady.
“The COVID-19 pandemic and ensuing economic and market downturn in 2020 tested investors’ resolve, but patience and resiliency were key in helping them weather the ongoing storm,” said Veronica Willis, investment strategy analyst for Wells Fargo Investment Institute.
The Wells Fargo/Gallup Investor and Retirement Optimism Index included U.S. adults with $10,000 or more in investible assets. The first quarter poll was conducted Feb. 8-16 with 1,536 investors, including 573 minority investors weighted to their correct proportion of the U.S. investor population. This oversample was designed to allow for robust analysis of Black and African-American investors’ views on a range of financial topics.
While Black and African-American investors reported higher optimism, some cited negative impact on finances.
Despite the downtick in overall investor optimism, Black and African-American investors’ overall optimism score was +101, significantly higher than the national average. Even so, one in three (31%) still said that the pandemic has had a negative impact on their finances.
About one in six Black and African-American investors (17%) said that their current income equals their expenses and one in eight reported they are either drawing on savings (10%) or running into debt (3%). Nevertheless, seven in 10 reported being able to save a little (53%) or a lot (17%).
Fifteen percent of Black and African-American investors who have a retirement plan reported taking a loan from their 401(k) or similar type of personal retirement plan since the start of the pandemic.
Nine percent of all investors took such a loan, and, among this group, the primary reason they cited for tapping their retirement funds was to pay off debt (35%). This was followed by 21% saying they used it to pay for a major expense, such as medical bills, and 16% said to help pay for their normal daily expenses. Another 18% said they used it to make a major purchase of some kind, while 4% used it to help other family members.
“While certain communities continue to be disproportionately impacted by COVID-19, I believe the significantly higher optimism of Black and African-American investors signals that they see a light at the end of the tunnel,” said David Dawkins, director of Diverse Client Segments at Wells Fargo Advisors.
Black and African-American investors reported similar progress in reaching financial life goals.
Looking at Black and African-American investors’ long-term financial health, nearly all (87%) Black and African-American investors reported having a retirement savings plan (similar to 89% among all investors). Additionally, Black and African-American investors reported similar progress with respect to other financial goals.
The poll asked investors to rank and describe how much progress they have made on six financial-oriented life goals. Progress toward achieving these goals was only slightly lower among Black and African-American investors, with the exception of saving for a child’s college education where Black and African-American investors slightly outpaced all investors.
The goals included paying off debts (63% of Black and African-American investors vs. 68% of all investors), owning your own business (46% vs. 52%), saving enough to live comfortably in retirement (36% vs. 42%), buying your own home (80% vs. 84%), saving for a child’s college education (46% vs. 40%) and saving to leave an inheritance for your children (33% vs. 36%).
“Although the data indicates similar progress in achieving financial goals, it still shows an alarming number of investors who are not reporting strong progress toward achieving their goals — particularly the goals with a longer time horizon,” Dawkins said.