Investors today are more optimistic about the stock market than they've been in nine years, but they're moving more money into cash and CDs. That's just one of several perplexing findings of the latest Wells Fargo/Gallup Investor and Retirement Optimism Index.
The index gained 11% in the third quarter to a reading of 79, up from 62 in the second quarter, based on improving sentiment about the stock market. Slightly more than half of investors are now "very" or "somewhat" optimistic about the 12-month outlook for markets, up from 42% last quarter.
But an almost equal percentage of survey respondents are more worried about stock market volatility than low interest rates, and 43% reported they have moved money to cash or cash equivalent savings over the past year. That's substantially higher than the 29% who moved funds into individual stocks or stock funds.
"It's hard to say that people are optimistic if they're actually investing heavily in cash," said George Rusnak, co-head of Global Fixed-Income Strategy at Wells Fargo Investment Institute, which provides advice to the company's financial and wealth advisors and their clients. "Maybe it's based on recent growth that they've seen in the stock market…but going forward they're seeing the challenges and risks associated with low interest rates [and] with potential uncertainty with elections."
Respondents held an average 30% in cash and CDs or money market accounts, 35% in stocks or stock mutual funds and 10% in bonds or bond funds, according to the survey, which was based on phone interviews in early to mid August with 1,021 investors. The remaining 12% of portfolios was held in "other investments," which could include real estate, gold or other commodities or alternative investments.
Rusnak stressed that investors will not be able to reach their average 7% annual gain this year and over the long term, which he defined as 10 to 15 years, if they continue to hold about 30% in cash.
Those heavy cash holdings reflect investors' risk aversion. Close to 60% of survey respondents said they preferred taking no risk at all or very little risk, and close to 90% were worried about the impact of the presidential election on financial markets.
Younger investors, between 18 and 49, were more worried about the election's impact on markets than those 50 and older, by a ratio of 68% to 57%, and women were more worried than men: 69% to 56%.
