Investor optimism declined slightly in November, thanks to a consistently weak economy. According to the Index of Investor Optimism, a joint effort of UBS PaineWebber and the Gallup Organization, the overall index decreased 13 points to 117 from 130 the prior month. Conducted monthly, the Index had a baseline of 100 when it was established in October 1996.
The decline in optimism was most pronounced among average investors, those with $10,000 to $100,000 in investable assets, dropping to 97 this month from 115 in October. In contrast, optimism held steady at 153 in November among substantial investors, those with more than $100,000 in investable assets.
Expectations for short-term return, over the next 12 months, was unchanged at 8.7% in November, with little movement among all age and asset levels. However, for the first time in the five-year history of the index, investors reported a negative average rate of return on their portfolios, -0.3%, over the past year.
In November, approval for the Federal Reserve matched last month's record high of 89% among those investors who had an opinion about the Board's current policies. Moreover, 62% of those surveyed were confident that the current interest rate levels will have a positive impact on the investment climate.
When asked how current economic conditions will impact investors' personal finances over the next six months, nearly one-third, 32%, said they will decrease their spending on major purchases, and more than one-quarter, 26%, planned to curtail overall expenditures.
Interestingly, the war on terrorism appears to have limited effect on investors' financial planning, as an overwhelming majority say the state of the economy is a larger influence on their spending levels (86%), major purchases (84%), debt levels (79%), savings (82%) and personal income (82%). However, not surprisingly, travel planning is significantly impacted by the war on terrorism, as 31% report it will affect their decision-making, compared with 55% who cite the state of the economy as more influential.