Investors have certainly been faced with disruptive economic conditions over the past year. What is most concerning is that disruptive conditions in the economy can make us reconsider investments and drive emotional changes that can severely impact our financial health.
A recent survey conducted by Edward Jones with Morning Consult confirms that Americans are split on how we view the current U.S. economy. While 45% of us are optimistic about the direction the economy is headed, nearly as many (42%) are pessimistic. The top concerns survey participants cited include:
- Rate of inflation- 83%
- Supply chain disruptions- 77%
- Employment rate – 71%
- Interest rates – 71%
The more concerned adults are with economic conditions, the larger the impact on their financial decisions. According to our survey, one in five Americans admit to primarily making emotional decisions when it comes to their personal finances. This figure is higher among Gen Z investors where more than one-third said they have primarily made financial decisions based on emotion. It’s important to remember that while an overly negative view of the economic outlook can result in an emotional sell off of solid investments, an overly optimistic view can result in more risky investment buying. Either action can have a negative impact on an investor’s financial goals.
“As we enter the fall giving season, we have a great opportunity to partner with our clients to determine the appropriate giving strategies for them.”
-Ken Cella, Principal, Client Strategies Group
The good news is that despite the ongoing economic uncertainty, most consumers (79%) have made carefully planned financial decisions over the past nine months. When asked what factors they consider, 30% of respondents said careful financial preparation, 23% seek advice from friends and family, 23% watch the market, and 22% seek advice from a financial advisor.
However, investors’ needs from their financial advisors are changing. More than half of Americans point to a variety of factors, including COVID-19, interest rates, and the unemployment rate, as impacting their expectations for their financial advisor. This figure increases to 75% for Millennials working with financial advisors.
Financial literacy is another factor contributing to changing investor expectations. According to our survey, there is a gap in economic and financial knowledge, leaving nearly a third of Americans feeling less than confident in their economic literacy. Trusted financial advisors can play a key role in building financial knowledge and confidence – two important building blocks for financial resilience.
Many emotions impact financial decisions including stress, anxiety, frustration, concern, disappointment, and excitement. Those who work with a financial advisor tend to find comfort in the financial advisor’s knowledge and experience – helping them feel more informed and less stressed and frustrated about their finances. For financial advisors, this is a time to lean on the deep, trusted relationships they’ve built with clients.
As financial advisors, we believe we have a responsibility to put clients first, educating them on how the market works and reassuring them that continuing to follow a well-thought-out strategy is the one of the best ways to help weather the storm. We know how important it is to not let fear or anxiety about market volatility, or eagerness to invest, derail long-term goals. That’s why at times like these, it’s that much more important for investors to have a financial advisor to help them stay focused on financial outcomes based on their on long-term goals.