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Investors are feeling better about the future of the economy and jobs, Wells Fargo reported this week.
The Wells Fargo/Gallup Investor and Retirement Optimism Index rose 24 points to 42 in the fourth quarter, nearly twice the gain recorded in the third quarter, but still far below the 20-year high of 138 the index reached in the January-to-March period.
Forty-eight percent of investors said they were very or somewhat optimistic about the 12-month outlook for the economy, up from 40% last quarter. Optimism about the potential for a decrease in unemployment rose seven percentage points to 40%.
Optimism levels for the stock market and inflation remained about the same as in the third quarter, at 47% and 19%.
"Investors were absorbing a number of significant developments in the economy, politics and the pandemic at the time of this survey," Michael Liersch, head of advice and planning for Wells Fargo's wealth and investment management division, said in a statement.
"These ranged from a new surge in COVID-19 infections and the October jobs report, to the Nov. 3 elections and the very first announcements about the high effectiveness of certain COVID-19 vaccines."
The index results were based on an online survey conducted Nov. 9 to Nov. 15, using the Gallup Panel, among 1,709 U.S. adults who have $10,000 or more invested in stocks or bonds, either individually or as part of a retirement or mutual fund. The fourth quarter poll included an oversample of 603 higher-income investors, defined as having $240,000 or more in household income.
Proceeding With Caution
Wells Fargo noted that the fourth-quarter poll was conducted before the Dow Jones Industrial Average cracked the 30,000 barrier in late November.
In the survey, 65% of participants said they were very or somewhat confident that the stock market is a good way to build wealth for retirement — a similar to the 69% who expressed this sentiment in both the 2020 and 2019 second quarters.
Similarly, 67% in the new survey reported feeling either neutral or optimistic about investing, rather than fearful of a market downturn.
Still, "the uncertainty and market volatility created by the pandemic may be causing some investors to continue to proceed with more caution than usual," Liersch said.
Although 69% of respondents said they have made no change to their cash versus investment allocations, 25% reported that they have kept a greater proportion of their money in cash since the start of the pandemic, significantly outnumbering the 6% who said they have invested a greater proportion in the markets.
Even with this, 32% of investors felt they had too little cash on hand, compared with just 7% who said they had too much.
"Liquidity affords people a sense of short-term control, while long term, they may recognize that they should either be investing or staying the course in the markets," Liersch said.
"This dynamic can create a bit of inner-conflict when making financial decisions for one's 'present' versus 'future' self. People wonder: Which one should I prioritize during times of uncertainty?"
Recognition of what is in versus out of their control is infused in much of investors' financial lives, Wells Fargo said.
