survey

Survey: Inflation, Interest Rate Changes Are Advice Opportunities

Even investors with financial advisors could use some extra help understanding inflation and interest rates.

Investors are increasingly positive about their household’s financial situation, compared to three years ago, according to survey results from TIAA’s Nuveen. They could, however, be unprepared for risks like inflation and changes in Federal Reserve Bank interest rates, even though they’re aware of those risks and are working with financial advisors.

In 2015, just 38 percent of investors surveyed had a positive outlook on the economy and 54 percent had a positive outlook on their own household’s financial situation. Three years later, those numbers grew to 58 percent and 67 percent, respectively.

Despite increasing confidence, some concepts still confuse investors, even those working with advisors. Sixty percent of investors either don’t know the current inflation rate or mistakenly think it’s five percent or higher. Just 32 percent of investors are able to identify the actual inflation rate. Despite the investors’ difficulty in quoting an inflation rate, most of them still recognize inflation is currently low and that it can be a factor to consider during retirement, or when ordering a coffee.

Investors are all over the map when it comes to understanding the impact on bond prices when interest rates change. Forty percent believe bond values increase when the Fed increases interest rates, 30 percent believe bond values decrease and another 30 percent believe the value remains the same or didn’t hazard a guess. The Securities and Exchange Commission has put out a handy guide to explain that when interest rates go up, prices of fixed-rate bonds fall.

Despite investor uncertainty as to the effect of interest rate hikes on bond prices, investors still think they should do something: 52 percent of investors would make an investment change because of rate hikes, a figure that jumps to 81 percent among millennials.

Survey participants needed to have at least $100,000 in investable assets and were currently working with financial advisors. The survey included 1,010 respondents that were U.S. adults 21 or older and were the primary or shared in financial decision-making in their household or family.

 

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