Clients feel bullish despite ongoing pandemic and election season
Retirement savers have a bigger appetite for risk and are beginning to feel more optimistic about their equities investments during the ongoing coronavirus pandemic, according to the latest Retirement Advisor Confidence Index, Financial Planning's monthly barometer of business conditions for wealth managers.
"Amidst COVID-19 and economic uncertainty, investors [are] surprisingly sanguine about financial plans," according to one advisor in the most recent survey.
That attitude helps explain why the RACI component that tracks retirement investments in equities hit a high for the year with a score of 62.8, up half a point from the previous month and 18.2 points over the same period a year ago.
RACI scores above 50 indicate an increase in confidence, and scores below that mark signify a decline.
Advisors polled in the latest survey generally report strong confidence among retirement savers, though they're not entirely convinced that that optimism is warranted. One advisor sees clients responding favorably to market rebounds, but expects "many will start freaking out" at the next downturn.
Overall, the composite RACI score in August checked in at 52.9, a modest 0.7 point dip from the previous month, but still the second-highest score of the year, and 6.9 points up from the same month last year.
"The general sentiment among clients was that things are getting better," one advisor says. "Most people don't think we're out of the woods yet, but it's improving."
It's no surprise then that several advisors report clients are willing to take on more risk in their retirement plans. The RACI component that tracks clients' risk tolerance checked in at 57, the highest mark since April 2019. Risk tolerance scores slumped in the early months of this year, but bounced back significantly in June and have been creeping up since. The August score accounted for a 1.7 point increase over July, and was 25 points ahead of the same month a year ago.
Still, some advisors report that their clients are hedging, with some keeping more money in cash because of the uncertainty around the coronavirus and the upcoming election.
"Clients are holding cash in waiting for the election," one advisor says.
The component of RACI that measures assets allocated to cash posted a score of 53.3 in the most recent survey, off a point from the previous month but 13.3 points up from the same period a year ago. Cash allocations have seen scores above 50 for the past four months, peaking in June at 55.
For some clients, the uncertainty around the presidential election has led them to adopt a wait-and-see mentality. One advisor says clients said they are "not making any changes until after [the] election."
Advisors have offered similar counsel throughout this turbulent year, reminding clients that planning for retirement must hew to a long-term strategy, cautioning against making dramatic changes to their plan based on market turbulence.
"Through this pandemic, I have not had many changes from 401(k) participants to either their contributions, fund choices or distributions," one advisor says. "I have had a few concerned calls, and a few people did move some assets to cash. Otherwise, most participants have stayed the course throughout."