Sign up today and take advantage of member-only content — the kind of timely, cutting edge industry insight that only Money Management Executive can deliver.
  • Exclusive Online Only Content
  • Free Daily Email News Alerts
  • Asset Management Blogs

Investors Optimistic Despite Economic Challenges

Despite economic challenges - such as rising healthcare costs, the federal budget deficit and soaring energy prices - affluent investors with at least $100,000 in financial assets have an optimistic outlook toward the investment climate for the next six months, mostly due to the fact that 50% of them believe it is currently better than it was a year ago, according to the Citigroup Smith Barney's "Affluent Investor Poll," conducted by Mathew Greenwald & Associates of Washington and Synovate of Chicago.

Between Dec. 8 and Dec. 13, Greenwald interviewed 577 investors online who are members of the Synovate consumer opinion panel. Most predicted that energy and technology will be the fastest and strongest growing sectors over the next year. They also identified healthcare and real estate as areas with potential for growth.

The individual investors also said only a small portion of their portfolio performed worse than they expected in 2005, and three-quarters said that last year, their personal investments performed either on par or better than their initial expectations. Roughly 75% expect their investments to perform even better in the next six months.

These bullish sentiments are rather ironic, since most investors believe that interest rates and inflation will be on the rise in 2006, and two-thirds don't expect an increase in economic growth over the next year. Less than 5% of the investors polled expect inflation to be lower by this time next year. Half believe that the unemployment rate will be the same this time next year, while only 24% say it will decrease.

The wealthier the respondent, the sunnier their forecasts. Of the total 577 people polled, 255 have at least $1 million in financial assets, and of these, more than half (61%) said the investment climate now is better than it was a year ago, and more than two thirds said the investing climate will continue to be positive over the next six months.

Predictably, investors offered mixed reviews of President George Bush's management of the U.S. economy. Half are dissatisfied with his work, and 27% of those indicated even further that they are very dissatisfied. Only 10% describe themselves as satisfied, and 30% said they are somewhat satisfied with the President.

Three quarters of investors are not happy with the way Bush is addressing the Federal budget deficit and half said he is not doing a good job of handling issues having to do with personal income taxes. Many are also unhappy with the spending on Iraq (57%) and homeland security (44%).

Looking overseas, about 75% of investors said they expect China to have the fastest-growing economy over the next year. India got 37% of the votes, Japan 22%, and North America 15%. For the next five years, 67% of investors said China will have the strongest growing economy.

Almost one-quarter of investors (22%) said that North America will be one of the slowest-growing economies in the next year, but the top regions where they do expect the economy to slow down are the Middle East, Latin America and Western Europe. Half of those polled said that they plan to change their investment strategy in light of these new trends.

Many investors said that they need to become a little more conservative when it comes to investing, and some even specified that mutual funds or fixed income could help them achieve this goal.

Other investors have set the goal of being more aggressive in their strategy for investing. Some have pointed out the need to preserve capital in the long run.

Some of the more popular financial resolutions for 2006 were being conservative, not taking chances, having realistic expectations, being as aggressive as possible, earning a minimum of 8%, investing 15% more than last year, paying more attention to investments and financial news, and sticking to a strategy and not losing sight of their financial goals.

Investors identified their biggest investment mistakes in 2005 as keeping too much in low-paying funds, not buying into certain stocks, not paying enough attention to their portfolio, not pulling the trigger when it was time to buy or sell, holding onto big winners too long, not investing in Google and staying in small-cap funds for too long.

Rising energy prices are affecting investors' short-term financial expectations but are not significantly impacting their long-term outlook. For nearly two-thirds, energy costs are having at least a minor impact on their feelings of financial security and day-to-day lifestyle. However, 85% said rising energy costs are having little or no impact on their ability to set aside money for savings or investments.

Nonetheless, 50% said rising energy costs are one of the top three problems facing the U.S. and in light of this, many are ready to see the country reduce its dependence on foreign oil, and have made the following suggestions: allow oil companies to drill in the Artic National Wildlife Refuge, reduce environmental regulations on companies willing to invest in additional refineries, manufacture more fuel-efficient cars, conserve and find new and alternative sources of energy.

(c) 2006 Money Management Executive and SourceMedia, Inc. All Rights Reserved.