Are We Seeing The Light At The End Of The COVID-19 Tunnel?

Most Americans report seeing brighter days ahead as financial impacts of COVID-19 begin to fade. As the stock market continues to hit record highs and COVID-19 case numbers continue to decline, most believe it’s safe to say brighter days are ahead when it comes to our finances. According to a new study* Americans are feeling better about risks from market conditions than they have in over a year.

Less than half (48 percent) of Americans say they are worried about a major recession, a number that has been steadily declining recently, and is down from 65 percent this time last year when the major financial impacts of the COVID-19 pandemic were just beginning to show themselves. At the same time, only a third (33 percent) say they are worried about the risks that market volatility can have on their retirement portfolio.

Specific to how COVID-19 impacted the financial situation of so many Americans, many report feeling more optimistic, with 63 percent saying they are less worried about the pandemic’s impact on their finances compared to this time last year. But many still haven’t forgotten the drastic and far-reaching impacts of the pandemic, with 50 percent saying they are still worried about another pandemic or a new strain of COVID and its impact on their portfolios.

But for many, the worries about market swings never really go away, as nearly three quarters (72 percent) say they expect the markets to be very volatile in 2021, and over a third (34 percent) say they are too nervous to invest right now. Those who say they are too nervous cite volatility (56 percent), fear of a market crash (53 percent), and lack of knowledge/information (53 percent) as their top reasons for holding back.

If the COVID-19 pandemic taught us anything about finances, it’s that these black swan events do happen, and the risks from market volatility can pose a real threat to investments and retirement security.

Naturally, we always find something else to worry about. When asked about issues that may have a negative impact on their portfolios over the next six months, 58 percent say they are worried about rising interest rates, and 57 percent say they are worried about tax policy.

Taking a breather
For clients who fall in the “perpetual worrier” category, now is a good time to talk with them about assessing various risks to their portfolios while we have a little bit of breathing room. The study found this topic is on the mind of Americans as well, with 63 percent of respondents saying the effects of COVID-19 on the economy are making them think about how to better protect retirement savings from market volatility.

The good news is that nearly two-thirds (64 percent) say they have made positive changes to their saving and spending habits since the pandemic began. It’s wise to take advantage of this momentum and work with your clients to make these changes into long-term habits that can help reduce risk and set them up for success in the future.

Beyond some of the behavioral changes that people are making, some are looking toward products that provide a level of protection against market drops as a potential solution. Currently, 64 percent say it is important to have some retirement savings in a financial product that provide some protection from market risk. That number is even higher for those with investable assets of more than $200,000, at 78 percent.

To help clients take advantage of momentum in the markets, you can work with them to identify options for growth, but still offer a level of protection. To that end, 47 percent say they are willing to give up potential gains for a financial product that protects a portion of their retirement savings, up from 43 percent at the end of last year.

While markets are hot, it can be a good time to remind clients that the principle behind successful investing of “buy low, sell high” seems so basic, but it can often be difficult to do in reality. Emotion and herd mentality often play critical roles in scrambling investor behavior, resulting in “buy high, sell low.” Chasing after returns like investing in a “hot segment” of the market and then panicking when the investment is being sold off can mean that individuals will never match the returns seen in the market.

This behavior is so incongruent with retirement accounts that are meant as long-term investments. By striking a balance with an option that will help mitigate losses but can also limit gains may help prevent a client from hitting the panic button and help to stabilize performance over the long term.

At the same time, it’s important for clients–even those that were burned by market drops in the past–to not sit on the sidelines with their cash. In fact, this sentiment of wanting to take action showed up in the survey results as well, with the number of people saying it is a good time to invest in the market steadily increasing since the end of last year, currently at 38 percent.

Looking ahead to brighter days
While we can’t forget the devastating financial, health and economic impacts of the COVID-19 pandemic, we can all start to take a more optimistic outlook. It’s important, too, to look for the silver lining, take advantage of lessons learned and apply them going forward.

Taking the time now can help mitigate future risks to retirement security, and even help with day-to-day finances and planning. The good thing is this is true–even for the worriers among us.

*Allianz Life conducted an online survey, the 2021 Q2 Allianz Life Quarterly Market Perceptions Study, in May 2021 with a nationally representative sample of 1,005 respondents age 18+.

Allianz Life conducted an online survey, the 2020 Q2 Allianz Life Quarterly Market Perceptions Study, in August 2020 with a nationally representative sample of 1,005 respondents age 18+.

As Vice President of Advanced Markets for Allianz Life Insurance Company of North America (Allianz Life®), Kelly LaVigne oversees the Advanced Markets team and is responsible for its strategic direction. This includes providing content and expertise to assist financial professionals in acquiring and serving clients through retirement planning, estate planning, and other tax-related strategies.
Prior to joining Allianz Life, LaVigne was director of advanced markets and director of industry and regulatory strategies for Transamerica Capital Management. Before joining Transamerica, he served as vice president of advanced markets for AXA Equitable, where he and his team published a book on retirement income planning to help financial professionals enhance their retirement income practice. LaVigne has also had leadership roles at ING/Aetna Financial Services and Travelers Life and Annuity.
LaVigne holds a Juris Doctor (JD) from Western New England College School of Law in West Springfield, MA, and a Bachelor of Science degree in communications and marketing from Central Connecticut State University in New Britain. He holds FINRA 6 and 26 securities registrations, a Life and Health Insurance license, and is a Certified National Instructor for Life Insurance Continuing Education.
LaVigne can be contacted at Allianz Life Insurance Company of North America, 5701 Golden Hills Drive, Minneapolis, MN 55416. Telephone: 763-765-6614. Email: