Investors are feeling insecure about their finances, the most insecure they’ve felt in the last 16 years.
And yet they are paradoxically growing more confident in the overall state of the economy.
That’s the takeaway of the latest “Planning & Progress Study” published by Northwestern Mutual.
Of the more than 4,500 adults the company surveyed, some 33% said they do not feel financially secure. That is up from the 27% who felt insecure last year and represents the highest level of insecurity since the study began in 2009.
At the same time, their confidence in the economy is trending in the opposite direction: 54% of those surveyed said they believed the economy would enter a recession this year, which is down from 67% the year before.
A possible reason for the disparity could relate to what investors are experiencing in their own lives. Inflation continues to be a problem and is affecting the average American’s monthly bills and expenses, according to Toby Eng, a Chicago-based wealth management advisor at Northwestern Mutual.
While inflation has been trending down, dropping to 3.4% in 2024, overall it has been up, eroding investors’ purchasing power and increasing their monthly bills. Only 9% of those in the Northwestern Mutual study said their household income was outpacing inflation, while 52% said income was growing more slowly.
“I think that would be a big reason why people feel insecure on a personal level,” Eng said.
Inflation is at the top of many investors’ minds; 51% of those surveyed identified it as the biggest obstacle to their financial security in retirement, followed by 43% who named the economy and 31% who cited a lack of savings as obstacles. As many as 54% thought inflation would continue to rise this year.
In addition, 57% ranked inflation as their biggest concern for what could impact their finances for most of this year. Their other concerns included government dysfunction and the upcoming presidential election.
With such uncertainty in the coming months, the role of the advisor has become more important than ever, Eng said. Advisors have to help investors wade through the troubled times and keep a focus on their end goals.
“If we can help people jump off the hamster wheel of life and reflect on longer-term goals that they have—the visions they have for their families and [seeing things in the] bigger picture—and put it together through an intentional plan, I think it changes people’s experience,” he said.
Advisors can help clients determine whether to be offensive or defensive when it comes to investments. The study found that 42% favored playing defense—which they defined as cutting costs and building savings.
On the other side of the coin, 29% said they would rather play offense, by doing things such as investing more in the stock market. How an investor wishes to proceed is based on where that person is in their savings life, and an advisor is best suited to help them make that decision, Eng said.
“When you focus on the client first and what’s important to them, that’s going to have the best outcome and people want to be heard and to be able to share their concerns,” he said.