The uncertainty around interest rates, tax-reform and an escalating trade war with China are all reasons why investors and advisors are worried that market volatility will increase over the next 12 months, according to a study by Nationwide Advisory Solutions.
More than half of investors (54 percent) and RIAs and fee-based advisors (56 percent) are concerned about a U.S. bear market over the next 12 months. Likewise, two-thirds of investors (66 percent) and more than half of advisors (56 percent) expect market volatility to increase over the same period.
The findings appear in a Special Report, "Safe Havens in an Uncertain World," from the fifth annual Advisor Authority Study of more than 1,600 RIAs, fee-based advisors and individual investors, commissioned by Nationwide Advisory Solutions and conducted online by The Harris Poll.
For the first time in four years, the report noted, investor and advisor optimism both declined at the start of 2019. Investor optimism fell to 55 percent in 2019 from 62 percent in 2018, and advisor optimism dropped 11 percentage points, to 55 percent in 2019 from 66 percent 2018.
The report explained that leading into 2018, investor and advisor optimism was high, fueled by the prospects of a finance-friendly tax plan, the administration's promise to cut regulation and a business-friendly majority in both the House and the Senate. But optimism declined leading into 2019 as uncertainty has prevailed, aggravated by concerns around interest rates, the less promising reality of tax-reform, the growing partisan divide and an escalating trade war with China.
For investors, headlines about lawmakers at home and abroad are of concern and impacting the markets. They (45 percent) rate gridlock in Washington as the No. 1 factor most likely to cause volatility; global instability came in second with 38 percent, and U.S. economic performance is a close third, selected by 32 percent.
On the other hand, RIAs and fee-based advisors differ somewhat. They (33 percent) rate interest rates as the No. 1 factor most likely to cause market volatility, selected by one-third (33 percent). This is followed closely by gridlock in Washington and U.S. economic performance, tied for second at 30 percent and global instability is a close third at 29 percent.
In the face of rising uncertainty, the number of investors who say they have an advisor increased by 11 percent in four years to 62 percent in 2019 from 51 percent in 2016, the report said.
And when asked to identify what would increase the likelihood that they would work with an advisor over the next 12 months, more than over half (54 percent) of investors said market volatility. Asked to identify the most important benefit of working with an advisor when markets are volatile, investors with an advisor say that helping them stay focused on long-term goals (21 percent) is the priority. This is followed closely by helping them make more informed decisions (20 percent) and protecting their assets against market risk (20 percent).
The report also pointed out that the vast majority of RIAs and fee-based advisors (88 percent) have a strategy to protect their clients’ assets against market risk. It noted that only 65 percent of investors in 2019 said they have a strategy to protect their own assets, up from 57 percent in 2018.