Investors Worried About Looming Economic Recession, Inflation and Volatility

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With inflation at a 41-year high and fast-rising interest rates, it’s no surprise that investor concerns are becoming more readily apparent. Now, because of the impact of pressing macroeconomic concerns, many investors are re-assessing their approach to financial planning — and most are anticipating an increase in volatility or an economic recession, a new study finds.

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The annual Advisor Authority study, released by the Nationwide Retirement Institute, found that 61% of investors polled (with investable assets of $100,000 or more) anticipate an increase in market volatility, and a whopping 69% anticipate an economic recession over the next 12 months. Another 56% are concerned about longer-term inflation.

Eric Henderson, president of Nationwide Annuity, told GOBankingRates he doesn’t find these findings surprising, given that over the last six months, there has been strong market volatility and inflation rates have been steadily rising.

“Early 2022 indicators suggest this trend may be more than just transitory, prompting the Fed to raise rates for the first time since 2018. It’s understandable why investors are rattled by inflation the likes of which we haven’t seen in decades and that’s increased the chances of a recession,” Henderson said. “However, with all the gloomy headlines, it’s easy to lose sight of the fact that we’re still in the midst of an economic expansion with job and wage growth remaining strong. Even with rising prices, retail sales have been robust.”

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When asked to identify how the past financial crisis — one that had the most profound impact on them — changed their approach to investing, 20% of investors polled indicated they chose to manage investments more conservatively, while 17% said that they are adopting a new strategy to protect assets against market risk. A substantial 17% of respondents said they use the market decline as a buying opportunity, the study detailed.

Henderson explained that for most investors, the worst of the COVID-19 pandemic is still fresh in their mind, while many others also lived through the 2008 financial crisis — and that both of these events have shaped how investors are responding to today’s volatility.

“In terms of investing, it’s not surprising that, particularly people close to retirement, would be more conservative based on those experiences. After living through 2008, and more recently 2020, solutions like annuities that provide investors with a measure of downside protection, but still provide an opportunity to grow their assets, are helping investors rest easier in volatile times. In previous crises, those who used the market decline as a buying opportunity were glad they did when they saw their portfolios swell as markets bounced back,” he said.

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Financial Advisors Play a Trusted Role For Investors

Another key finding is that advisors are ready to address clients’ needs, with 70% of advisors and financial professionals feeling more confident about their ability to help protect their clients’ finances and investments should another crisis arise, per the study data.

In addition, 93% of financial advisors polled said they currently have a strategy in place to help protect their clients’ assets against market risk. A whopping 92% say they have a strategy in place to protect clients against outliving their savings.

“Good advisors are helping their clients think about the right time to claim their Social Security benefits,” Henderson said. “There are huge tradeoffs associated with taking Social Security benefits early. Financial professionals are helping their clients think about opportunities to maximize their benefits when making this important decision.”

He added that dividend yield stocks can help clients generate income in addition to capital gains, while variable annuities with living benefit riders provide a measure of protection in down markets (and guaranteed income in retirement), allowing investors to feel more secure that they won’t run out of money if markets tank, or they live longer than expected.

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In terms of protecting against market risk, among advisors with a strategy, the solutions they would choose to protect clients include diversification (55%), fixed annuities (48%) and fixed indexed annuities (46%).

“It’s never a good idea to put all your eggs in one basket. Diversification can help investors avoid excess exposure to specific types of risks and increase the chance that other investments will provide balance when one type of risk spikes,” Henderson said.

He added that one advantage of fixed annuities is they provide predictable returns, allowing investors to protect their savings throughout their retirement years. In turn, during periods of inflation, fixed indexed annuities may be more attractive to some investors because they offer some protection from market risks — along with the opportunity for greater returns if the markets perform well.

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Finally, the study indicated that at a time when the burden of saving for retirement is placed on the individual investor, professional financial guidance is critical. Notably, 63% of investors polled currently work with an advisor or financial professional.

“I would love to see the other 37% of investors seeking out professional guidance,” Henderson added. “I’m not surprised — but was glad to see — the high level of confidence financial professionals have in helping their clients navigate financial crises. That finding reinforces the value financial professionals can provide in helping investors prepare for, and live in, retirement.”

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About the Author

Yaël Bizouati-Kennedy is a full-time financial journalist and has written for several publications, including Dow Jones, The Financial Times Group, Bloomberg and Business Insider. She also worked as a vice president/senior content writer for major NYC-based financial companies, including New York Life and MSCI. Yaël is now freelancing and most recently, she co-authored  the book “Blockchain for Medical Research: Accelerating Trust in Healthcare,” with Dr. Sean Manion. (CRC Press, April 2020) She holds two master’s degrees, including one in Journalism from New York University and one in Russian Studies from Université Toulouse-Jean Jaurès, France.
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