[June 23, 2021]

Investors Emerge From COVID with Outsized Investment Return Expectations, Finds Natixis Survey

A roller-coaster ride in the markets over the past year has only strengthened post-pandemic market expectations, with investors looking for 17.3% returns above inflation on their investments this year, on top of average reported gains of 16.5% in 2020, according to findings from a new survey of individual investors published today by Natixis Investment Managers. In the United States, investors are emerging from COVID-19 with long-term return expectations that are 61% higher than before the pandemic began.¹ Yet the survey reveals a disconnect between investors' outsized expectations and financial fears, which for many have been shaped by how they experienced COVID and its impact on their health, finances and emotional well-being.

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Investors' and financial advisors' investment return expectations growing farther apart (Graphic: Business Wire)

Natixis surveyed 750 investors in the United States who have at least $100,000 in household investable assets as part of a larger global survey conducted in March and April 2021 of 8,550 individual investors across 24 countries.

The findings suggest that most American respondents escaped the pandemic relatively unscathed. Nearly six in 10 (56%) have experienced no negative health or financial impact. Overall, 8% caught the virus. Just 14% report any loss of household income, which is well below the global average of 25%. Meanwhile, US investors reported the highest investment returns in 2020 of any country Natixis surveyed. When asked to describe how they have felt about their financial security during the pandemic, the vast majority of American investors say they feel fortunate (79%), resilient (76%) and confident (70%).

"While not the experience of all Americans, the US investors we surveyed fared better during the pandemic than those in almost every other country in terms of employment, income and investment returns," said David Giunta, CEO for the US at Natixis Investment Managers. "Yet the long-tail physical, financial and fiscal effects of the pandemic are far-reaching and still unfolding, which creates both risks and opportunities. The big challenge for investors and those who advise them will be to position themselves for success and to remain resilient."

The Effects of COVID-19 on US Investors

Natixis found a mix of emotions among investors depending on their circumstances during the pandemic. Four in ten (43%) say they are stressed about their financial security. One in three have felt vulnerable (30%), even fearful (30%). Of respondents who had the virus, nearly half (49%) say that at least one other member of their household did as well, reinforcing that COVID-19 and its consequences were largely experienced as a household unit, or family.

The survey found that the health impact of the pandemic was closely related to the financial impact, as the 19% of households where one or more members caught COVID-19 suffered a greater financial toll than those who escaped infection. Of this group:

• 31% experienced a significant setback to their financial security, nearly twice as many as those in households where no one caught the virus (16%).
• 21% reported a loss of household income, and 15% were forced to borrow from their retirement savings plan.
• 10% were forced to retire altogether, roughly three times more than those in households where the virus didn't hit (3%).

Overall, younger respondents, namely Generation Y (ages 25 to 40) and Generation X (ages 41 to 56) were two times more likely than Baby Boomers (ages 57 to 75) to have caught COVID-19. Yet while younger people may be less vulnerable to the health risks, they are not immune to its impact. Generations X and Y investors are two times more likely than Baby Boomers to say the pandemic significantly set them back financially (23% of Gen Y and 28% of Gen X vs. 11% of Baby Boomers).

Personal Finance Lessons Learned

COVID-19 stress-tested investors' personal financial behaviors, and the experience was a lesson in fundamental spending, saving, planning and investing principles, including the following:

• Saving: Four in ten (41%) investors overall say the pandemic taught them the importance of having an emergency savings account. This was felt most strongly by those in households directly affected by the virus (53%) versus those who weren't (38%). Half (50%) of Gen X and 53% of Gen Y investors say they learned their lesson on this, compared to 31% of Baby Boomers.
• Spending: 44% of investors, including 51% of both Gen X and Gen Y investors, say the pandemic convinced them of the importance of keeping their spending in check.
• Planning: 38% of investors in households where they or other members caught COVID-19 said the pandemic opened their eyes to the role they play in their household's entire financial picture. Nearly as many (36%) say the experience taught them the importance of having an estate plan. By comparison, 24% of investors cited proactive estate planning as a lesson learned among households where no one was infected.
• Investing: After a year that saw both the swiftest market downturn and the swiftest recovery on record, nearly one in four (24%) investors say the pandemic taught them the importance of understanding risks in their portfolio. Slightly more (27%) learned they need to avoid making emotional investment decisions, including 34% of both Gen X and Gen Y investors.

Overall, 58% of investors made changes in their investing accounts as a result of the pandemic. One-third (33%) increased trading activity, one in five (20%) said they invested more money and 16% increased contributions to their retirement savings plans.

Much of this activity was led by younger investors. It's been widely reported that since the pandemic began, day-trading has risen sharply in popularity worldwide along with the emergence of the meme stock phenomenon. Yet while 63% of Baby Boomers say they have made no changes in their investment accounts, 82% of Gen Y and 75% of Gen X investors have, including roughly one in four who invested more money. Gen Y investors were most likely to increase online trading activity (43%) and to have opened a margin account (13%). They also were most likely to say in that, in retrospect, they learned the importance of weighing the tax consequences of their investment decisions (27%). Gen Y and Gen X were two times more likely than Baby Boomers (16%) to say they learned the importance of not making emotional investment decisions.

Return Expectations Gap Grows More Massive

Not only have post-COVID-19 return expectations soared, so has the gap between investors' long-term return expectations (17.5%) and the 6.7% average annual returns US financial advisors believe is realistic.² This difference represents a 161% gap between investor and advisor expectations, up from a gap of 73% in 2019, when investors anticipated 10.9% returns above inflation.

"In a prime example of recency bias, many investors seem to believe that if their investment portfolios did so well during the pandemic, they'll do even better during the recovery," said Dave Goodsell, Executive Director, Natixis Center for Investor Insight. "However, investors need to be emotionally equipped to withstand the higher levels of risk needed to pursue those outsized returns. The persistent fear of losses will test investor mettle when markets swing and will require financial advisors to help clients keep their emotions in check and their expectations grounded in reality."

Six in ten investors (60%) say they are comfortable taking risks to get ahead. Three-quarters (75%) recognize market swings of 10% up or down as a normal occurrence, and 68% have even grown comfortable with the idea that volatility can create opportunities to grow wealth.

Yet when push comes to shove, the vast majority of investors (77%), including 75% of Gen X and 79% of Gen Y investors, say they would choose the safety of asset protection over investment performance. They rank volatility as their biggest immediate investment concern, ahead of a slower-than-expected economic recovery, inflation and political dysfunction. Meanwhile, they say their greatest financial fear is the prospect of increased taxes, ranking it ahead of healthcare costs and job security.

The full report and charts are available at www.im.natixis.com/us/research/2021-natixis-global-survey-of-individual-investors.

Methodology

Natixis surveyed 8,550 individual investors globally, including 750 in the US with the goal of understanding their views on the markets, investing and financial security. Each of the 8,550 respondents had minimum net investable assets of US $100,000 (or Purchase Price Parity [PPP] equivalent). The survey was conducted in March and April 2021 by the research firm CoreData.

About the Natixis Investment Institute

The Natixis Investment Institute applies Active Thinking^® to critical issues shaping the investment landscape. A global effort, the Institute combines expertise in the areas of investor sentiment, macroeconomics, and portfolio construction within Natixis Investment Managers, along with the unique perspectives of our affiliated investment managers and experts outside the greater Natixis organization. Our goal is to fuel a more substantive discussion of issues with a 360° view of markets and insightful analysis of investment trends.

About Natixis Investment Managers

Natixis Investment Managers serves financial professionals with more insightful ways to construct portfolios. Powered by the expertise of more than 20 specialized investment managers globally, we apply Active Thinking^® to deliver proactive solutions that help clients pursue better outcomes in all markets. Natixis Investment Managers ranks among the world's largest asset management firms¹ with more than $1.3 trillion assets under management² (€1,152.8 billion).

Headquartered in Paris and Boston, Natixis Investment Managers is a subsidiary of Natixis. Listed on the Paris Stock Exchange, Natixis is a subsidiary of BPCE, the second-largest banking group in France. Natixis Investment Managers' affiliated investment management firms include AEW; Alliance Entreprendre; AlphaSimplex Group; DNCA Investments;³ Dorval Asset Management; Flexstone Partners; Gateway (News - Alert) Investment Advisers; Harris Associates; Investors Mutual Limited; Loomis, Sayles & Company; Mirova; MV Credit; Naxicap Partners; Ossiam; Ostrum Asset Management; Seeyond; Seventure Partners; Thematics Asset Management; Vauban Infrastructure Partners; Vaughan Nelson Investment Management; Vega Investment Managers;⁴ and WCM Investment Management. Additionally, investment solutions are offered through Natixis Investment Managers Solutions, and Natixis Advisors offers other investment services through its AIA and MPA division. Not all offerings available in all jurisdictions. For additional information, please visit Natixis Investment Managers' website at im.natixis.com | LinkedIn (News - Alert): linkedin.com/company/natixis-investment-managers.

Natixis Investment Managers' distribution and service groups include Natixis Distribution, L.P., a limited purpose broker-dealer and the distributor of various U.S. registered investment companies for which advisory services are provided by affiliated firms of Natixis Investment Managers, Natixis Investment Managers S.A. (Luxembourg), Natixis Investment Managers International (France), and their affiliated distribution and service entities in Europe and Asia.

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