Half of investors (52%) say stock market volatility, rather than continued low interest rates (38%), is the greater threat to their portfolio over the long-term, according to the Wells Fargo/Gallup Investor and Retirement Optimism Index.
Non-retirees are especially likely to say stock market volatility is the greater source of concern (57%), versus 34% who are more concerned about low rates. On the other hand, 47% of retirees feel continued low interest rates are a greater problem, versus 41% of retirees who fear market volatility over low rates.
When investors were asked to choose whether low interest rates or high interest rates are better for their own financial situation today, 63% of all surveyed say they prefer low interest rates, and this surges to 71% of non-retirees. However, this is not the case for retirees, of whom 41% said they prefer low rates. One-third of all investors said they prefer high interest rates.
“Most people who are not yet retired have a consumer mindset when they consider the benefit of low rates because they like their loans to cost less. However, people must also consider the impact of low rates on long-term investing. The way to navigate through low rates as an investor is to build a diversified portfolio that has the potential to sustain itself through volatility and the challenges of a low-rate environment,” says George Rusnak, co-head of global fixed income strategy for Wells Fargo Investment Institute.
When the survey asked investors what happens to bond prices when interest rates go down, more than half (54%) admit they don’t know. Only 22% correctly identified the inverse relationship whereby bond prices typically go up when interest rates go down. Another 17% think the two move in the same direction.
“This prolonged low-interest-rate environment highlights how beneficial it is for investors to understand the mechanics of bonds and how they play a part in long-term growth opportunities,” says Rusnak. NEXT: Investors are risk averse