Advisors seen as crucial as financial crisis fears mount, Nationwide says

Today’s investors have likely survived a financial crisis, maybe even two. That said, a study shows a significant number of them doubt their finances will safely make it through the next one.

According to Nationwide’s eighth annual Advisor Authority survey, four in 10 investors (39%) think the U.S. is already in a financial crisis, and three in 10 (30%) say the U.S. is approaching one. Unnervingly, only 36% of respondents are confident that they will survive the next financial crisis despite living through prior episodes.

The study, conducted by the Nationwide Retirement Institute, showed one-fifth (20%) of investors expect to face two more financial crises in their lifetime, and almost half (43%) expect to face three or more. Furthermore, nearly four in 10 (39%) investors revealed that after living through a previous crisis, they are “more nervous about their ability to protect their finances.”

“With the echoes of the Covid recession and 2008 still fresh in people’s minds, it’s not surprising investors are bracing for the worst considering some of the news making headlines this year,” Mark Hackett, Nationwide’s chief of investment research, said in a statement.

Hackett added that it’s reasonable for investors to expect a recession in the year ahead, but he believes some of the pessimism felt by the survey’s respondents may be “overblown.” Nationwide’s economics team is currently predicting a moderate, shallow and short recession.

Steven Brod, CEO of Crystal Capital Partners, says those most fearful of harsh market cycles may want to add institutional alternative investment strategies to their portfolios, "whether it be global macro, multi-strategy, equity long short or relative value, among countless other low-volatility strategies one can integrate into a portfolio.

"Historically, institutional managers that have navigated murky market cycles have the knowledge, infrastructure, and resources to not only weather cycles, but also capitalize on the opportunities that present themselves in times of market dislocation,” Brod said.

Elsewhere, the study showed that older generations are bracing for impact. According to the report, 38% of Gen X and 29% of baby boomer investors expect a prolonged period of severe downturn marked by stagflation and instability. Moreover, they don’t expect this to be their last financial crisis, with two-thirds (65%) of Gen X and almost half of baby boomers (48%) expecting to live through at least two more financial crises in their lifetimes.

Younger generations, on the other hand, admitted concern about their present circumstances, but remained positive about their long-term outlook. The survey revealed that half of millennial (58%) and Gen Z investors (49%) expect to live through at least three additional financial crises. Nevertheless, the study showed 56% of Gen Z and 50% of millennials say they still expect to retire on time, as planned.

The one thing that is clear across all generations is that it helps to have a financial plan and an advisor’s guidance. The study showed nearly nine in 10 (88%) investors feel more confident that they can make the right investment decisions even during extreme financial crises by having a plan for their investments. And investors with an advisor proved to be less nervous (31% vs. 46%) and more confident (40% vs. 26%) than those without an advisor in their ability to protect their finances in the event of another financial crisis after living through prior episodes.

For their part, nearly two-thirds (65%) of advisors think market volatility will increase over the next twelve months, with inflation (33%), interest rates (27%), and an economic recession (24%) being the most common causes.

“Given the rapid increase in interest rates following a prolonged period of easy money, we are already seeing impacts to the economy and the financial markets. Higher rates will, almost by definition, have an impact on equity and commercial real estate valuations,” said John Guthery, chief investment officer at FusionIQ.

“That said, we do not have to have a full blown ‘crisis’ for investors to feel the pain of a weaker economy and financial market volatility," Guthery said. "I continue to stress the need for diversification not only in asset classes, but also financial institution diversification.”