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Investor Outlook at Second-Lowest Level Since 1996, Index Shows

Three surveys released last week indicate that investors' expectations for the financial markets have recently declined. Investors' outlooks in June fell to their lowest levels since September and their second-lowest levels since 1996, when UBS and The Gallup Organization began tracking their Index of Investor Optimism. Currently at 72, the index had a baseline of 124 when it was established six years ago. It fell to 50 in September 2001, following the terrorist attacks and reached a high of 178 in January 2000 just before the decline in the Nasdaq 100 and S&P 500.

Today, however, only 38% of investors said they are optimistic for the prospects of the financial markets over the next 12 months, down from 46% in May. Still, investors with less than five years of experience in the markets said they expect a 15.9% return in their portfolio over the next year, compared with a 7.0% return that more experienced investors expect.

Meanwhile, another survey by J.D. Power and Associates indicates that investors are more concerned about their investment firms' trustworthiness and ability to keep them informed of market conditions than a year ago. This is according to J.D. Power's inaugural Investor Satisfaction Survey, in which the firm interviewed 8,500 investors.

"In times of economic turbulence and market volatility, consumers value investment firms that have proven track records and give advice [they] can rely on," said Ellen Guion, senior research manager of investment services at J.D. Power.

Finally, more than likely as a result of investors' receding confidence in the markets and their own ability to make investment decisions, a third survey released indicates that they are not saving enough in their 401(k) plans. By surveying more than 100 companies at its annual retirement group conference, Merrill Lynch discovered that plan sponsors' biggest concern is that their employees are not saving enough for retirement - an added concern given the drop-off in investment returns. Among respondents, 27% said low savings rates in their 401(k) plans was their biggest concern.

"It is clear that the current economic climate is driving concerns among retirement plan sponsors. Employees will not be able to achieve retirement security on investment returns alone. Savings rates need to be increased," said Mark Feuer, chief operating officer of Merrill Lynch's retirement group