Index funds and advisors give investors a confidence boost

A new survey by FTSE Russell reveals that retail investors are increasingly cautious about the economy and the upcoming presidential election, but those feelings are offset among those invested in index funds and working with financial advisors.

The 2024 US Wealth Survey, which builds on previous research in 2022, found a 95 percent majority of investors believe the presidential election will impact their finances, including 30 percent who expect a “major” effect. Those worries don't seem to be sparking any widescale reallocations, however, as only 21 percent intend to alter their portfolios based on election outcomes.

Among numerous concerns, 76 percent of investors expressed a negative outlook on the economy, while 60 percent said they were worried about inflation. This caution is reflected in the shift toward a “risk off” approach, with 42 percent of respondents identifying as risk-averse, up from 37 percent in 2022. However, nearly half (48 percent) of index fund investors described themselves as “risk on,” highlighting the increased confidence within this group.

Another three-quarters of investors in the survey said they're inclined to ride out a market decline or view it as a buying opportunity, indicating a cautious yet resilient approach.

“US investors are sending a clear message that index funds and working with advisors are critical components to their confidence in navigating the current market,” Jason Meyer, head of asset owners, consultants, and wealth said in a statement.

Index fund use is on the rise, according to the survey, going from 27 percent to 39 percent across all investors. Millennials are leading the way, ramping up their adoption from 27 percent to 45 percent. Gen Y respondents also reported the highest index fund allocations in their portfolios at 44 percent, outpacing Boomers at 36 percent and Gen Xers at 37 percent.

The poll findings revealed a telling gap between investors who use index funds and those who don't. Ninety-one percent of index fund investors expressed optimism, confidence, and satisfaction with their portfolios over the past 12 months, compared to just 79 percent of non-index fund investors. While performance over time remains the leading reason for using index funds, cited by 58 percent of retail investors, there's been an increasing number of investors citing other benefits including diversification (from 42 percent in 2022 to 51 percent currently), low fees (from 29 percent to 41 percent) and portfolio risk management (from 29 percent to 36 percent).

Advised investors appeared to be fully satisfied with their advisors, particularly for their shared values, financial planning, and investment performance. Eighty-three percent of those working with advisors expressed a positive outlook for their portfolios over the next 12 months, significantly higher than the 73 percent of investors without advisors. 

Respondents with an advisor in their corner were more likely to be happy with their portfolio returns over the past year (90 percent, compared to 75 percent of unadvised investors). Two-thirds of the advised cohort also said they have a very or somewhat positive view of the stock market over the next year, a notable gap over the 59 percent of investors that go their own way.

The survey findings also suggest a role for advisors in accelerating the momentum for index funds. Among retail investors who aren't using index strategies, 42 percent blamed a lack of familiarity, 34 percent weren't sure how to choose the best one for them, and 21 percent said it's because their advisor hasn't recommended it.

"Smart use of index investing is an opportunity for advisors to demonstrate the value of their advice,” Meyer said.