Consumer confidence can be the difference between a thriving economy and one that is struggling. With the economic recession becoming a reality and long-standing companies that were a household name becoming obsolete, consumer savings is at an all time high. According to the Bureau of Economic Analysis, personal savings in January 2009 rose 1.1 percent over December 2008. This statistic is tied to the fact that consumers have become uncertain about their future and therefore have decided to save their disposable income.
Consumer savings can be more than simply putting the money into a savings account; it includes different ways of investing their money. Nearly every investment portfolio took a plunge when the economy began making headlines and many consumers became wary of the market. For years, many have thought that their home would be their best investment. Seeing the bust of the housing bubble has also contributed to the deterioration of consumers’ confidence. So, where does that leave them in terms of managing their wealth and investments?
According to Rick Hoy, a Wealth Advisor for Community Bank of Tri-County, which serves the Washington, D.C. area, old money is not looking good, but new money invested has the opportunity to position the portfolio for future growth. Many portfolios may never again see the peaks that they have reached over the past decade. This realization of the situation has caused a large portion of investors to seek out more safe and secure options that have traditionally a lower rate of return. However, there is a small portion of the population that does like to take risks. And there are opportunities to invest in the present market that will make money if investors are willing to stay in it for the long haul.
With all this uncertainty, it’s difficult for financial institutions to advise their consumers on which investments are best. Analyzing this type of market and relying on an economic background is not what consumers need right now. As many wealth management advisors will tell you, making promises on returns is always difficult, but in the present market with only a few portfolios showing a steady rate of return, what consumers need is more of a psychologist. When consumers decide that the market is going to go down, they stop spending or investing and in a sense, the situation becomes a self-fulfilling prophecy. What consumer need is for an advisor to assure them that they are not alone and that eventually they will see a positive return on their investment, even if it’s not at the double digit increase they would like.
Declining values on investor’s quarterly statements have really taken a toll on them. Part of being an advisor is to help consumers understand that those numbers that they had seen were not necessarily a reflection of the wealth that they had. With the stock market especially, the money isn’t solvent until the stocks are sold. So helping consumers to understand that those numbers were all just an estimate until cashed in may help them to get over the loss they are feeling.
Additionally, the most important message that an advisor can drive into a potential investor is that there are investments out there that will make money. There are new sectors emerging that were not even viable opportunities in the last decade. Help investors understand where the growth will be and how investments tied to the on-going stimulus plans may help their portfolios bounce back.
