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Wednesday July 24, 3:29 pm Eastern Time
Press Release
SOURCE: Charles Schwab
Schwab Investor Sentiment Survey Reveals Mixed Emotions
Long-term faith in the markets remains despite pessimistic short-term outlook
SAN FRANCISCO--(BUSINESS WIRE)--July 24, 2002--Results of a new survey (1) of Charles Schwab & Co., Inc. clients (fielded the week of July 15th) illuminate competing attitudes toward the market based on long and short-term time horizons.
"Despite an almost daily litany of bad news, investors continue to have faith in the power of investing for building long-term financial security," said Charles R. Schwab, Chairman and Co-CEO, "but that faith is being severely tested, and we see many investors taking a wait and see attitude, watching for signs that the market excesses have been worked out, and that action is being taken on issues of ethical lapses in corporate America."
Two-thirds of investors (67%) state that they are optimistic about the future and 79% vow to wait out the market's turbulence and not make any changes in their investments until things change.
At the same time, however, over half of all respondents (55%) agreed with the description of their investment strategy as "being on the sidelines," up from 44% in November. Asked what would bring them actively back into the market again, these sidelined investors agreed they would need to see "more evidence that the economy is strengthening," (84%); or "corporate earnings start to show steady improvement" (83%). More than three-quarters (78%) said they are simply "watching for the market to rise steadily."
Much less focus was on non-economic issues such as terrorism; only 29% agreed they would need to first see "a major victory against terrorism." While the vast majority (87%) say their confidence as investors would be restored at least moderately if harsher punishment for those who break the rules is carried out, punishment of those accused of wrongdoings does not seem to offer significant motivation to begin investing again. A little over a third (36%) of those who feel they are sitting on the sidelines are waiting for justice to be carried out against Wall Street and corporate executives following this year's conflict of interest and accounting scandals before returning to the markets.
"Clearly, this environment is causing anxiety and soul-searching among investors who are now less sure of the right next move. We are suggesting that investors confirm or re-evaluate their investment objectives and their long-term tolerance for risk. Many investors who built their portfolio during the bull market are now considering revising their strategy to suit the times," Mr. Schwab remarked. "The best armor for this environment is a tailor-fit plan built with diversification and asset allocation."
A Question of Confidence
Highlighting their faith in investing, over three-quarters of respondents (77%) say they "feel the stock market continues to be the best place for long-term investing." This measure of confidence has declined from previous periods and compares to 84% in May 2002(2) and 92% in November 2001. A little under half of respondents (42%) agreed that the extended bear market has "shaken my long-term confidence in the stock market."
If there is a crisis of confidence, it is directed mostly outward at the institutions that serve investors.
72% of respondents continue to feel confident in their ability to be successful investors
89% feel that there has been a breakdown in the ethics of corporate America
78% feel; that the vigilance of government and regulatory watchdogs with oversight of corporate activities has broken down
74% feel that there has been a breakdown in Wall Street research and how stock recommendations are made to investors
Investor Behavior Underscores Belief in Markets, Desire for Validation
Among investors who made changes to their portfolio over the previous 12 months, the majority (57%) both bought and sold securities. Only 17% were primarily selling; 24% primarily bought.
Two out of three respondents (66%) hold at least one stock that has lost 50% or more of its value in the last two years. When asked whether they would sell it and replace it with another stock given a range of possible returns, 23% of them said they plan to hold onto those stocks regardless of other alternatives; 21% said they would switch for an opportunity of a guaranteed 5% return; 38% would switch if they felt they had "an opportunity to buy a stock with risk but a likely annual return of 10%."
When asked about their investment plans for the next 12 months, a significant portion of investors said they would be seeking more information to help them validate their investment decisions (64%); diversify their holdings (44%); and hold a larger proportion of their portfolio in cash (33%). A significant majority (62%) feel that relative to stocks, real estate has become a better investment opportunity.
Greater Stress + More Discipline = New Expectations
At the same time the volatility and steep market declines are taking a toll. Eight in ten (82%) respondents agree that investing is more stressful today than two years ago and 69% agree that compared to two years ago, they worry more about whether they are making the right decisions. As a result, 59% have become more cautious in their investing style.
In addition to being more cautious, respondents are also taking a harder look at how they invest -- nearly half (45%) say they are more disciplined than two years ago. Among those who have changed their investing style, 72% believe this will be a permanent change.
Going forward, 70% of clients believe "looking for investments that are relatively safe is more important than looking for higher returns," compared to 59% in November, 2001. Among investors who describe themselves as more cautious today compared to two years ago, nearly half (48%) describe it as a permanent change.
Few respondents expect to see the high level returns of the late 90s -- the average anticipated rate of return for their investments over the next twelve months is 8%. In total, 72% of respondents anticipate an annualized return on investments of 10% or less.
Corporate Ethics Count
The majority of respondents (64%) agree that there has been a major breakdown in the ethics of corporate America, and nearly half (47%) agree there has been a major breakdown in Wall Street research and stock recommendations. Nearly 9 in 10 (88%) agree that tighter finance controls need to be placed on the leadership of corporations. Only 28% agreed "Wall Street is capable of policing itself."
Among the 64% of respondents who believe there has been a major breakdown in the ethics of corporate America, 47% feel a major overhaul is necessary; 26% a minor overhaul, and a quarter believe the system does not need fixing -- there are "just some individuals that need to be punished."
Among the 47% of respondent who believe there has been a major breakdown in the way Wall Street provides research and investment advice, 54% believe fixing the problems requires a major overhaul in the way investment research and advice is done.
Resetting the Clock on Retirement
The impact of the market downturn will take a considerable time to work its way out of their portfolios according to these investors. Few respondents (4%) expect a full recovery of their portfolio in less than a year's time -- the majority expects such a recovery to take three or more years (65%); 20% believe it will be at least six years before they see full recovery of their losses.
Nearly a third of respondents (29%) reported that as a result of the market downturn, they would have to delay their retirement, up from 18% who responded similarly in November 2001.
Gender Differences
The survey highlighted some notable differences between men and women. For example, while only 20% of male respondents feel they have lost confidence in their ability to be successful investors, that rose to 36% for women. While 52% of men considered their investment strategy as being "on the sidelines," for women, 63% used that characterization. As a result, women are taking more cautionary measures in the next 12 months -- 36% plan to hold a larger share of their portfolio in cash (vs. 31% of men), while 39% plan to rely more upon advice from a financial professional (vs. 27% of men).
Words to the Wise
Respondents have words of wisdom for people new to investing -- nine in ten would advise investors to refrain from over-investing in a particular company or sector (90%), and to be careful whom they trust for investment advice (88%). Nearly 9 in 10 (88%) agreed with the statement that "if it looks too good to be true it probably is too good to be true." Reflecting their confidence in the stock markets for long term investing, 85% of respondents agreed with the advice that "investing is a lifelong process -- you have to stick with it through the ups and downs."
About Charles Schwab
The Charles Schwab Corporation (NYSE:SCH - News), one of the nation's largest financial services firms, serves 8 million active accounts with $797 billion in client assets. Through Schwab (member SIPC/NYSE), U.S. Trust Corporation, and CyberTrader, Inc. (member SIPC/NASD), The Charles Schwab Corporation provides a full-service investing experience to clients through 428 domestic offices, 5 regional client telephone service centers and automated telephone and online channels. The Schwab, U.S. Trust and CyberTrader Web sites can be reached at www.schwab.com, www.ustrust.com and www.cybertrader.com, respectively.
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(1) The Harris Poll was conducted via telephone on July 15 and 16 among Schwab clients. Survey conducted among investors with a minimum of $50,000 in total investable assets, excluding real estate and 401(K) or 403(B) retirement accounts. Sample size = 510, Margin of error = +/- 4.3% at the 95% confidence level. "Agree" was aggregation of "strongly agree" and "somewhat agree".
(2) Source: Charlton Research Company, on behalf of Charles Schwab & Co., Inc. Date collected: 4/24 - 5/6/02.
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Contact:
Charles Schwab Public Relations
415/636-5454
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