Is This a Financial Crisis? 4 in 10 Investors Say Yes
After living through previous crises, just 36% of investors have confidence surviving the next one. Those with advisors feel more secure.
With signs of a recession flashing, including bank failures, persistent inflation, ongoing volatility and the possibility of a government debt ceiling crisis, many nervous investors are wondering if we are approaching another financial crisis, according to Nationwide's eighth annual Advisor Authority survey, powered by the Nationwide Retirement Institute.
While four in 10 investors (39%) believe that the U.S. is already in a financial crisis and three in 10 (30%) believe the U.S. is approaching one, just 36% are confident that they will survive the next financial crisis despite living through many prior episodes.
In today's environment, survey respondents say financial crises feel more like an inevitability than a possibility. One-fifth (20%) of investors expect to face two more financial crises in their lifetime, and nearly half (43%) expect to face three or more. In addition, many are worried that their finances will not survive the next market downturn, with nearly four in 10 (39%) investors indicating that after living through a previous crisis, they are more nervous about their ability to protect their finances.
"With the echoes of the COVID recession and 2008 still fresh in people's minds, it's not surprising investors are bracing for the worst considering some of the news making headlines this year," said Mark Hackett, Nationwide's Chief of Investment Research. "While it's reasonable for investors to expect a recession in the year ahead, some of the pessimism we're seeing among survey respondents may be overblown. Our economics team still predicts a moderate, shallow and short recession at this point, and I think it's premature to label today's environment a crisis. However, it is a good time to revisit your plan with an advisor or financial professional, and we're seeing more confidence among investors who do so."
Older generations are bracing for impact.
It is often said that experience is the best teacher. As investors across older generations rely on previous lessons learned, many are bracing in anticipation of an economic downturn. For example, 38% of Gen X and 29% of Baby Boomer investors expect a prolonged period of severe downturn marked by stagflation and instability. What's more, they don't expect this to be the last crisis they live through. Two-thirds (65%) of Gen X and almost half of Baby Boomers (48%) expect to live through at least two more financial crises in their lifetimes.
"Older generations have experience weathering more downturns, and it's not surprising that has conditioned them to proceed with caution," said Eric Henderson, President of Nationwide Annuity. "They also have more on the line, with larger nest eggs vulnerable to market swings and less time to make up for savings lost in a downturn – which contributes to their fear."
Younger generations are concerned but remain positive about their long-term outlook.
Half of Millennial (58%) and Gen Z investors (49%) expect to live through at least three additional financial crises. However, these investors remain optimistic about their retirement journey, with 56% of Gen Z and 50% of Millennials saying they still expect to retire on time, as planned.
Despite their long-term optimism, younger generations' expectations for a proximate recession are relatively in line with their older counterparts. A large share of Gen Z (43%) and Millennial (26%) investors expect a prolonged period of severe market downturn marked by stagflation and instability.
"Younger investors are growing up with the reality that they need to take ownership of their financial future because they can't count on a pension plan like their parents. Savvy younger investors also recognize that they have the benefit of time on their side to recover from significant downturns or setbacks, which may be contributing to their more optimistic long-term outlook," Henderson said.
Having a plan and an advisor improves confidence.
Across all generations, one thing is clear – it helps to have a plan. Nearly nine in 10 (88%) investors feel more confident that they can make the right investment decisions even during extreme financial crises by having a plan for their investments.
Investors with an advisor feel less nervous (31% vs. 46%) and more confident (40% vs. 26%) than those without an advisor in their ability to protect their finances in the event of another financial crisis after living through prior episodes.
Advisors and financial professionals are ready to help
Mirroring the sentiments of investors, advisors and financial professionals expect economic turmoil to continue, but are ready to assist their clients. Nearly half (42%) of all advisors expect the impending recession to be short and shallow that begins and eases gradually, while under a quarter (23%) expect a significant and prolonged market downturn marked by stagflation and instability.
Nearly two-thirds (65%) of advisors think market volatility will increase over the next twelve months, with inflation (33%), interest rates (27%), and an economic recession (24%) being the most common causes.
Advisors are working to prepare their clients, educating them on market cycles (43%), adopting strategies to protect their assets against market risk (43%) and listening to their needs and concerns (43%) to create a sense of control and security for clients during a market crisis.
"It's clear that having a plan and a trusted advisor makes a difference," Henderson said. "As advisors help their clients build a plan and consider protection solutions, they should also encourage them to remain focused on their long-term goals. Whether or not today's environment turns out to become a full-blown financial crisis, advisors are in a great position to inject calm and guide clients through what's to come as they have through turbulent moments in the past."
For additional insights on this survey data, see Nationwide’s infographic.
Nationwide's eighth annual Advisor Authority study powered by the Nationwide Retirement Institute® explores critical issues confronting advisors, financial professionals and individual investors—and the innovative techniques that they need to succeed in today's complex market.
About Advisor Authority: Methodology
The research was conducted online within the U.S. by The Harris Poll on behalf of Nationwide from January 4-13, 2023, among 511 advisors and financial professionals and 789 investors ages 18+ with investable assets (IA) of $10K+. Advisors and financial professionals included 274 RIAs, 175 broker-dealers, 128 wirehouse and 55 other financial professionals. Among the investors, there were 203 Mass Affluent (IA of $100K-$499K), 167 Emerging High Net Worth (IA of $500K-$999K), 106 High Net Worth (IA of $1M-$4.99M) and 104 Ultra High Net Worth (IA of $5M+), and 209 investors with $10K to less than $100K investable assets ("Less affluent"). Investors included a subset of 224 "pre-retirees" age 55-65 who are not retired.
About The Harris Poll
The Harris Poll is one of the longest running surveys in the U.S. tracking public opinion, motivations and social sentiment since 1963 that is now part of Harris Insights & Analytics, a global consulting and market research firm that delivers social intelligence for transformational times. We work with clients in three primary areas: building twenty-first-century corporate reputation, crafting brand strategy and performance tracking, and earning organic media through public relations research. Our mission is to provide insights and advisory to help leaders make the best decisions possible. To learn more, please visit www.theharrispoll.com.
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