Rates, inflation still enough to keep would-be investors on the sidelines

The start of a new year often has a feeling of renewal and optimism about it, but when the challenges of the previous year remain, this can be a hard state to achieve.

American consumers feel under pressure from interest rates and inflation that, while there are some positive signs, are still elevated and add to the uncertainty about the U.S. economy. With global growth concerns added into the mix, widespread market volatility continues to be a concern.

For participants in a new survey from Allianz Life there is a split over whether they believe the domestic economy will improve this year with slightly less than half in the optimistic camp (47%), continuing a downward trend from 66% in Q4 2020, 54% in Q4 2021, and 48% in Q4 2022.

Most respondents (74%) think 2024 will see a very volatile market and 77% expect interest rates to not only remain high, but to be increased this year. Inflation remains an issue with 67% saying that high prices have made it hard for them to stay afloat in the past three months.

Financial professionals are in demand to help mitigate the challenges and risks and three quarters of respondents said they would stop using their current financial professional if they didn’t help effectively manage ongoing inflation concerns.

Despite this, 60% expect their personal finances to improve, although this is a lower share than in recent years, again continuing a downward trend (from 67% in 2020, 65% in 2021, and 61% in 2022). There is a clear generational gap in this regard with Millennials most confident in improved personal finances (67%) while Gen Xers (59%) and Boomers (51%) are less so.

Overall, many respondents say that they are too nervous to invest in the market currently including 51% of Millennials, 40% of Gen Xers, and 37% of Boomers.

Saving in high-interest accounts or money market funds are preferred options of 55% of poll participants, especially Millennials, and 61% would rather have their money sit in cash than endure market swings.

“High interest rates in savings accounts or money market accounts can be enticing,” says Kelly LaVigne, Vice President of Consumer Insights, Allianz Life. “A high-yield savings account is a good place to build an emergency fund or save up for something in the near future. But, those accounts aren’t likely to provide the greatest return on money over the long term. For long-term goals like retirement, you’ll want to take part in the market and invest in ways that still mitigate potential risks like longevity and inflation.”