business woman in front of laptop at window talking on phone (Photo: Shutterstock)

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Most investors are feeling good about their financial prospects, according to a survey from the Investments & WealthInstitute that was issued at the start of the COVID-19 pandemic. Of the investorssurveyed, 50% are expecting positive rates of return intheir portfolios while only a third of them are expecting declinesover the next 12 months.

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"Except where there may be extreme market declines of 50 percentor more, investors seem secure about their futures, theirretirements, and their advisors," the survey found. Specifically,25% of investors are expecting a rate of return between 1% and 9%,16% are expecting a rate of return between 10% and 19%, and 9% areexpecting a rate of return at least 20%.

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The survey also asked investors if they thought they would achievetheir retirement funding goals during market declines ofmild, moderate, significant, or severe scales. Results indicatedinvestors believed they would achieve their goals despite a mild ormoderate decline. However, during a significant decline, only 37%said they thought they would meet their goals, another 37% thoughtthey wouldn't, and 26% didn't know. This suggests, the report said,that advisor help and communications around retirement planning isespecially important during major market declines.

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The survey found a link between strong advisor-clientrelationships and the willingness of clients to accept lowerreturns. However, that willingness would be tested if the marketdeclined 50% or more for up to a period of two years, the surveyfound — in that case, 10% of investors said they wouldleave their financial advisor.

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Advisors were reported to be proactive, for the mostpart, in providing action plans that addressed market declines. Inresponse to the question, "Has your advisor addressed what actionsshould be taken in your portfolio in the event of a significant orsevere market decline?" 49% of investors surveyed said theiradvisor had shared action plans without being asked; 26% said theiradvisor shared plans when asked.

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Among those clients who had a plan, 36% believed it had a"significant, positive effect" on their peace of mind and 52% saidit had "some positive effect."

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The survey — which was conducted by Absolute Engagement andsponsored by Toews' Behavioral Investing Institute — also foundabout one-third of investors wished they had taken a differentapproach during the financial crisis of 2008-2009.

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Despite some of the positive attitudes being expressed by someinvestors, financial advisers should be talking with their clientsabout lowering their expectations or rethinking their strategies,the survey recommended.

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"This may include exiting stocks, adding alternative strategies,changing allocations more to bonds, or adding hedged equities orloss-avoidance strategies to their clients' portfolios," the surveyfound.

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The survey noted that investors are more likely to leave theirfinancial advisors the more the market falls. One step advisers cantake is provide clarity to the investment plans they've given theirinvestors — the survey found that while most investors are aware ofa plan, they "do not always feel it is a clear plan."

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The survey was distributed to 751 investors in mid-March 2020,the same month the world began feeling the effects of theinternational outbreak of the novel coronavirus. On March 10, thefirst day the survey's authors began collecting data, majoruniversities began cancelling in-person classes while musicfestivals like Coachella were postponing dates due to thepandemic.

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"As a result, we had the fortuitous coincidence of askinginvestors about investor behavior during a crisis, in the midst ofthe most significant financial crisis since The Great Depression,"the survey noted. "Of all prior infectious disease outbreaks, noteven the 1918 Flu Pandemic has impacted the financial markets asdramatically as COVID-19, and the story is far from over."

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David Thomas

I'm a reporter covering the business of law, with an emphasis on national and global law firms for The American Lawyer, Law.com and other ALM publications.