Investment Outlook

Investors focus on avoiding losses, not guarding gains: Nuveen research

Executive summary

 

About the survey

The 2018 Income Diversifiers Survey reveals investor perspectives on how they invest and their associated emphasis on creating and managing future investment-generated income streams. The survey was conducted online by The Harris Poll on behalf of Nuveen within the United States between February 22 and March 8, 2018 among 1,010 US adults aged 21+ with at least $100,000 in investable assets who are primary or shared decision makers for financial decisions for themselves or their family, and who currently are working with a financial advisor.

Feeling bullish about economy and household finances

A majority of investors (58%) has a positive outlook about the economy heading into 2018, a substantial improvement from 38% in 2015. Men tend to be more positive than women (65% vs. 47%) in their outlook. But, Millennials seem to be the most optimistic of all, with 75% feeling positive about this year’s overall economic prospects.

Macro reflected in micro picture

Investors’ overall bright view of the economy appears to extend to their personal finances, as well, with 67% expressing a positive outlook for their household’s finances in 2018. Here, too, men were more likely to feel positive than women (71% vs. 61%), and Millennials outshone all groups with 83% holding a positive view of their household’s economic fortunes in 2018.

Most foresee benefits from the 2018 tax law changes

Nearly two in three investors (65%) approve of the new tax plan that was enacted in 2018, and a majority (61%) believe the plan will be at least somewhat beneficial to them personally.

Millennials are much more likely to approve of the new tax plan (83%) than their older counterparts, the Baby Boomers (61%) and Matures (63%). The perceived benefits of the tax plan also decline with age – 85% of Millennials see a personal benefit, compared to 57% to 59% for Gen X and young Boomers, and 45% to 46% for older Boomers and Matures.

People’s views of the benefits of the tax plan also are reflected in gender and retirement status. For example, 46% of women think the plan will not benefit them. Meanwhile, 55% of retirees also think the new tax plan will not benefit them.

Views of the plan also vary based on the respondent’s investable assets, with those in the $500,000 to $1 million range appearing to be the most optimistic about the tax plan’s effect on their personal situations.

Certain blind spots when it comes to portfolio risk

Despite a prevailing sense of optimism regarding the nation’s economic outlook and its potential impact on their personal finances, three out of four investors (77%) indicate that the larger economic situation is making investing more complex.

Four out of five (80%) investors either always or sometimes pay attention to investment risk – the risk of losing money – as they consider their portfolios.

Unfortunately, they appear to spend less time considering ways to guard their gains by addressing other portfolio risks. For example, while 72% consider inflation risk as it applies to their portfolios, less than half (46%) consider credit risk.

How often do you pay attention to the following types of risk in your portfolio?

The power of MYTH

Most investors (70%) know starting a new career in retirement could push them into a higher tax bracket. But, when it comes to particulars – such as the tax treatment of capital gains – many investors have trouble discerning fact from myth.

Know that this is a myth: “Defined contribution withdrawals are taxed as capital gains”

 

This sense of confusion may help to explain another interesting finding about respondents’ attitudes toward future tax complexities: 52% of investors worry about capital gains taxes in retirement.

Good news for advisors: Investors look for help in navigating risks, seeking future income

More than three out of four investors (77%) rely on a financial advisor (a moderate amount or a great deal) to help with income planning. What’s more, 56% of investors indicated that in the next six months they’d would like to discuss with their financial advisors a portfolio that can generate income while seeking to preserve capital.

Investors need to pay attention to more than investment risks, especially with rising rates.

Chart does not represent the past performance or yields of any Nuveen fund.
*To learn more about why prices of bonds fall when interest rates rise, visit the SEC’s investor bulletin on interest rate risk at https://www.sec.gov/servlet/sec/investor/alerts/ib_interestraterisk.pdf
Data source: Bloomberg L.P. as of 31 Dec 2017. Past performance is no guarantee of future results. Yields are yield to worst.
Representative indexes: 2-year Treasury: Bloomberg Barclays U.S. Treasury Bellwethers 2 Yr. Index; 10-year Treasury: Bloomberg Barclays U.S. Treasury Bellwethers 10 Yr. Index; 30-year Treasury: Bloomberg Barclays U.S. Treasury Bellwethers 30 Yr. Index.
Different benchmarks, economic periods, methodologies and market conditions will produce different results. There is no assurance that any asset class or index will provide positive performance over time. It is not possible to invest directly in an index.
The need for income diversifiers

Adding diverse sources of income to your traditional bond portfolio may help reduce risk, as no single asset class leads in all markets.

Chart does not represent the past performance or yields of any Nuveen fund.
Data source: Morningstar Direct, 1 Jan 2008 - 31 Dec 2017. Past performance does not guarantee future results. Performance of all cited indexes is calculated on a total return basis and includes income reinvestment but does not reflect taxes. Diversification does not assure a profit or protect against loss.
Representative indexes: broad bond market: Bloomberg Barclays U.S. Aggregate Bond Index; high yield corporates: Bloomberg Barclays Corporate High Yield 2% Issuer Capped Index; high yield municipals: Bloomberg Barclays High Yield Municipal Bond Index; investment grade corporates: Bloomberg Barclays U.S. Corporate Index; investment grade municipals: Bloomberg Barclays Municipal Index; preferred securities: ICE BofA Merrill Lynch Preferred Stock Fixed Rate Index; real assets: Real Asset Income Blend; senior loans: Credit Suisse Leveraged Loan Index; U.S. Treasuries: Bloomberg Barclays U.S. Treasuries Index; emerging markets debt: JPMorgan Emerging Markets Bond Index (EMBI) Global; U.S. equities: S&P 500® Index.
Different benchmarks, economic periods, methodologies and market conditions will produce different results. It is not possible to invest directly in an index.

Three out of four investors (77%) indicate that the larger economic situation is making investing more complex. That is why tried and true diversification is important.

 

Learn more about income diversifiers.

 

Income-Oriented Investing The need for income diversifiers: Is your portfolio providing the income you need?
Income-Oriented Investing Fixed income strategies for low and rising rates
Income-Oriented Investing The enduring case for high-yield bonds
1 Reuters, U.S. hiring accelerates; annual wage growth strongest since 2009, Feb 2, 2018.
Investing involves risk; principal loss is possible. There is no guarantee a fund’s investment objectives will be achieved.
Equity investments are subject to market risk or the risk that stocks will decline in response to such factors as adverse company news or industry developments or a general economic decline. Investing in global markets poses risks not typically involved in investing in the securities of U.S. issuers, including foreign currency risks and the
possibility of substantial volatility due to adverse political, economic, or other developments.
An investment in any municipal portfolio should be made with an understanding of the risks involved in investing in municipal bonds, such as interest rate risk, credit risk and market risk, including the possible loss of principal. The value of the portfolio will fluctuate based on the value of the underlying securities. Clients should contact their tax advisor regarding the suitability of tax-exempt investments in their portfolio. If sold prior to maturity, municipal securities are subject to gain/losses based on the level of interest rates, market conditions and the credit quality of the issuer. Income may be subject to the alternative minimum tax (AMT) and/or state and local taxes, based on state of residence. Income from municipal bonds held by a portfolio could be declared taxable because of unfavorable changes in tax laws, adverse interpretations by the Internal Revenue Service or state tax authorities, or noncompliant conduct of a bond issuer.
Fixed income securities may be sensitive to changes in prevailing interest rates. When rates rise, the value generally declines. There is no assurance that the private guarantors or insurers will meet their obligations. An investment in taxable fixed income securities may be subject to certain additional risks, including credit risk, foreign
risk, and currency risk.