Financial advisors see lessons in forgettable 2022 for investors

While more investors saw their financial condition deteriorate in 2022, their advisors are turning last year’s troubles into a teachable moment.

Rising inflation and falling stock prices made 2022 a year most American investors would prefer to forget. Before flipping the calendar page to 2023, however, their financial advisors are turning last year’s “annus horribilis” into a teachable moment.

According to Allianz Life’s recently released New Year’s Resolutions Study, almost one in three Americans (29%) say their financial situation is worse compared to a year ago, up from 19% in 2021. Respondents who say their finances are in better shape than a year ago slightly dipped to 19% in 2022 from 22% in 2021. Meanwhile, more than half (53%) say their financial picture is the same, down from 58% in 2021.

Meanwhile, investors are also fretting more about their nest eggs, with more than two-thirds (67%) worried about the state of their retirement plans, up from 47% the prior year, according to the third annual Risk Tolerance Tracker from annuity and insurance provider F&G. The survey asked American investors how the events of 2022 have impacted their views on their retirement and risk.

The major driver of this economic pessimism is inflation, the Allianz survey showed. Inflation is the first or second most worrisome threat in the next year for over half (52%) of respondents, up from 38% in 2021.

Of course, the drop of nearly 20% in the S&P 500 index in 2022 wasn’t helping investors’ moods.

“Losses are no fun, but down markets lead to higher dividend yields, more bond income, and lower valuations,” said Richard Siminou, senior financial advisor at Siminou Wealth Management at Kingswood U.S. “Expected returns are now higher. Corrections and bear markets are investors’ admission fee to invest in markets. Time in the market beats timing the market.”

Also seeing the bright side of a dismal market was Jay Beynon, financial adviser with Axió Capital Advisors at Stifel Independent Advisors. Beynon reminds his clients that markets run in cycles and that “many American investors had experienced more than a decade of growth in their personal investments, prior to the market’s consolidation in 2022.”

“It is healthy for markets to consolidate and reestablish a new base before moving higher,” he said. “And if you put into perspective the rate of inflation growth and a 400-basis-point increase in Fed rates in 2022 then the markets were actually quite resilient.”

Generationally speaking, millennials are the most optimistic for 2023 with 44% expecting their financial situation to improve in 2023, compared to 25% of Gen Xers and 16% of boomers, the survey revealed.

Moreover, one in three (33%) Americans say they are more likely to seek out the advice of a financial professional in 2023, compared with just 22% in 2021, according to the study.

“As financial pessimism rises, consulting a financial advisor helps families understand where they are now and where they want to go and whether they are prepared for financial emergencies,” said Christian Nwasike, principal at Practice Management Consultants and board chair of the Association of African American Financial Advisors. “An African American family that works with a financial advisor has seen their net worth increase almost 15% in the past year.”