Despite exhaustion with Washington, investors stand fast

Wealthy investors are feeling increasing resentment at the actions of political leaders in Washington, but less than half say their their frustration will affect their investments. PNC Wealth Management conducted a survey of nearly 1,000 investors with $500,000 or more in investible assets in September. Two hundred of them were contacted again in early October, following the government shutdown. In the later survey, nearly half of respondents said they had a more pessimistic view of the economy. Only 4% said, “Things are going to get better,” and three-quarters agreed that the government needs to change the way it functions. (Don't miss this take on how D.C. involvement in the economy creates market uncertainty) Still, 52% said they will not be changing their investment strategy in the next six months. “I think people are really buying into the notion that investing was always meant to be a long-term endeavor,” said Thomas Melcher, executive vice president and managing executive of Hawthorn PNC Family Wealth. “Investors are a bit more sophisticated and it's difficult to commit a lot of money elsewhere.” Mr. Melcher attributed part of investors' willingness to keep their investment strategy steady, despite tension in Washington, to the public's increasing knowledge about investing. At the same time, he said, there are not many alternatives for investors at a time when cash savings are earning minimal returns and interest rates are likely to begin facing upward pressure. If an upturn in interest rates is sharp and severe, all asset classes will be punished, Mr. Melcher said. If they rates slow growing, the equity market is likely to perform reasonably well. “The economy's actually OK,” he said. “We can speculate all day long as to whether the dysfunction in Washington has shaved 1% of GDP, 2% off of GDP. It's kept a lid on things, but it hasn't yet forced the economy into recession.” The October survey responses reverse a trend of increased optimism in the economy. About a third of the survey's September respondents described themselves as somewhat or very optimistic about the state of the economy. Two years ago, that number was only 10%. Nearly 70% of the respondents also said their net worth has increased by at least 20% in the past few years, an increase from 52% of respondents who reported the same in 2012. Mr. Melcher said he expects most investors will continue to stick with their current investment strategies unless government policy begins to push the U.S. economy toward recession. “If the odds start tilting toward recession, then I think people would start repositioning their portfolios,” he said. “I'm guessing what you'd see is more liquidity on the sidelines.”