At first glance it may look as though the affluent investors ($100,000+ investable assets) escaped the global pandemic relatively unscathed, as more than 54% say they avoided any of the key health threats and financial pressures experienced by much of the world. On the health front, just 6% say they contracted Covid – a rate that’s 40% lower than the 10% global rate of infection reported by the World Health Organization¹ – while just 9% report someone in their household contracted the disease. But the financial effects were felt more broadly.

About one in ten (9%) said they lost their job or business for at least part of the year. One-quarter said they lost personal or household income during the pandemic. And 19% say they were forced to tap personal savings and other assets to make up ground. In the end almost one-fifth said they experienced a setback to their financial security.

Overall, these relatively affluent investors recognize that Covid had a lesser effect on them than others, and three-quarters (73%) believe they have been fortunate. After being tested in many ways over the past year, seven in ten describe themselves as resilient, not fragile.

While these alone could add up to an optimistic outlook, a large number of investors express more mixed emotions. After living through a global public health crisis like no other seen in a century, about half of those surveyed (49%) report that they are stressed. Another 42% say they are fearful and 40% still say they are vulnerable.

But these are global averages, and in truth, how investors fared during the pandemic varied greatly depending on where they lived.

 

Latin
America

Investors hardest hit by health and financial effects of Covid

 

Asia

Pandemic put pressure on investor finances

 

Europe

Investors define the “average” Covid experience

 

North
America

Investors more likely to avoid financial and health risks

• Latin America

• Asia

• Europe

• North America

Investors hardest hit by health and financial effects of Covid

Of all investors surveyed, those in Latin America were hit hardest by the pandemic. Seven out of ten respondents in Argentina/Uruguay, Chile, Colombia/Peru, and Mexico reported they had experienced at least some of the financial and health effects of the pandemic.

As investors, many made out well in the markets with average returns of 14.2% above inflation reported across the region, but markets do not reflect the broader economy. A full 30% of investors in the region and 36% in Colombia/Peru say they experienced a serious setback to their financial security as a result of Covid. More than one-third (35%) said they lost income because of the pandemic. This includes 38% in Colombia and Peru, 37% in Argentina and Uruguay, and 31% in Mexico. Almost one in five (17%) also said they lost their job or business for at least part of the year.

It’s likely many will feel the financial impact for a long time as 20% of individuals said they make emergency withdrawals form their retirement plan, a number almost three times greater than the global average of 7%. Most prominently, this included 42% of investors in Chile, and 22% of individuals in Colombia/Peru.

On the health front, the number of individuals who said they contracted Covid was double that of the rest of the world (12% vs. 6%). At 19%, investors in Colombia/Peru reported the highest rate of infection among all countries surveyed, while 13% in Mexico say they also came down with Covid. Investors in Latin America were also more than twice as likely to report that a member of their household came down with Covid (23% vs. 9%).

Overall, the pandemic has taken an emotional toll on individuals in Latin America. Investors here were most likely to say they were stressed about their financial security (60% regionally, 65% in Chile). Almost half (49%) say they are fearful, rather than confident about their financial security. Even more (52%) say they feel vulnerable. But despite all they have experienced, seven in ten say they are fortunate after coming through the pandemic.

Pandemic put pressure on investor finances

Stringent lockdown policies in the region, combined with masking practices established during past outbreaks, may have helped to mitigate health risks in Asia, but a significant number of investors say that Covid has presented them with financial challenges.

Individuals surveyed may report average investment returns of 12.4% above inflation, but that does not provide a complete picture on finances. Almost one in five (18%) said they experienced a setback to their financial security as a result of the pandemic. Overall, one-third (31%) of investors lost household income during the pandemic.

These regional numbers are partially mitigated by better outcomes in Japan, where only 8% of investors report losing income. On the other end of the spectrum, individuals in tourist-dependent Thailand (59%) were most likely to experience a loss of income, as did close to four in ten individuals in Hong Kong (39%), China (38%) and Korea (37%).

While they may have felt the financial impacts of Covid, investors in Asia report the lowest infection rates of all: Less than 2% report they (1.4%) or a member of their household (1.8%) came down with Covid. In China the results are even more dramatic at 0.5% and 0.3% respectively.

But investors in Asia still feel emotional toll. Seven in ten may say they feel fortunate, but almost six in ten (57%) say they are stressed about their financial security – including 70% in Korea. And despite reporting less of a financial impact from Covid, 61% of investors in Japan also say they are stressed as well. Half of those in Asia also say they are fearful, rather than confident, and close to the same number (46%) feel vulnerable.

Investors define the "average" Covid experience

Individuals in Europe fared better during the pandemic than other regions, with six in ten reporting they experienced no impact from Covid. As a region, they report infection rates of 7% for individuals and 10% for their household and relatively moderate financial impacts from the pandemic.

The combination of swift action by policy makers and higher income levels among the respondent pool resulted in just 7% of investors losing their job or business for part of the year, and less than one in five (19%) losing household income. Financial prospects were also buoyed by average investment returns of 11.2% above inflation. As a result, just 11% of Europeans believe they experienced a significant setback to their financial security during the pandemic – the lowest number in any region.

Sentiment in Europe is more positive than in Asia and Latin America. Six in ten investors say they feel assured about their finances, rather than stressed. Investors in Germany (73%), the Netherlands (69%), and the UK (69%) were most likely to say they were assured. Overall, two-thirds say they are confident about their financial security, most prominently in the Netherlands (78%), Germany (74%), the UK (71%) and Switzerland (70%).

Investors more likely to avoid financial and health risks

Six in ten investors in North America say they felt none of the financial or health effects of the global pandemic. On the financial side of the equation, they fared best in terms of unemployment, income and investment returns. On the health side, the reported level of infection was lower than the global average.

Individuals in North America reported average investment returns of 14.9% above inflation in 2020, and US investors reported returns of 16.5% above inflation – the highest returns of any country in the survey. National unemployment data that suggests a lower impact on higher wage earners comes across clearly in our respondent pool: 7% in North America say they lost their job or business for even part of the year, while just 15% say they lost household income. Yet despite the positives, almost one in five (17%) still say they experienced a significant financial setback as a result of the pandemic.

The health impact reported by North American investors was slightly higher than global averages, with 6% saying they came down with Covid and 12% saying someone in their household did. However, there were stark contrasts between the infection rates reported by investors in Canada, where less than 1% said they came down with Covid themselves and just 3% said a member of their household did, and the US, where 8% of investors said they had Covid and 15% said a member of their household did.

Emotionally, those in North America were similar to investors in Europe, with 80% saying they feel fortunate about their financial security (84% in Canada, 79% in the US), 76% describing their sentiment as resilient, 69% expressing confidence instead of fear, and 59% feeling assured instead of stressed.

Impressive double-digit returns in 2020, the reality of vaccines in 2021, and the prospects of global economies reopening are adding up to a wave of optimism for investors. They also add up to big expectations for investment returns.

After capturing returns of 12.5% above inflation in 2020, investors anticipate even higher returns post-pandemic markets: For 2021 they expect to achieve annual returns of 13% above inflation. Over the long term, they anticipate 14.5%. Both numbers are substantially greater than the 5.3%² above inflation financial professionals say is realistic. As a result, the global expectations gap now stands at 174%, or 53 percentage points higher than what we found in 2020. (Note: 121% gap based on 2020 Advisor responses and 2019 Investor responses)

Most surprisingly, after the hardships of the pandemic, investors in Latin America had the greatest gaps between investors’ hopes and professionals’ reality, including 252% in Mexico (16.2% vs. 4.6%²), 213% in Colombia/Peru (16.6% vs. 5.3%²), and 173% in Chile (16.4% vs. 6%²) and Argentina/Uruguay (15% vs. 5.5%²).

In Italy, expectations of 8.6% above inflation for 2021 may close the gap somewhat, but Italian investors expect long-term returns of 11.6%. Even this relatively modest figure is not in line with the 3.8%² financial professionals call realistic, leaving a 205% gap for investors there. Investors in the UK face a similar challenge with a 207% gap (14.1% vs. 4.6%²).

US investors may have the highest long-term return expectations at 17.5%, but the 161% gap with the professionals’ call for returns of 6.7%² looks better than what’s expected in other countries. The 157% gap in France looks considerably smaller as well (12.1% vs. 4.7%²).

It may be surprising to say the countries where the lowest gaps are found are those where investor expectations were still more than double what advisors say is realistic. This includes 118% in Germany (10.7% vs. 4.9%²) and 120% in Canada (11.2% vs 5.1%²).

Behavioral finance experts would likely say that this is a prime example of recency bias, in which investors have seen positive returns under difficult circumstances and assume better returns under better conditions. In this case it looks as though they may actually be discounting the process of reopening in 2021 and extrapolating greater rewards once the process is complete.

If they are going to pursue outsized returns, investors will have to be emotionally equipped to withstand higher levels of risk. Outwardly, investors say they are: Six in ten (58%) say they’re comfortable taking risks in order to get ahead. Seven in ten (68%) recognize that market movements of 10% up or down are a normal occurrence. The same number also believe volatility creates opportunity to grow their wealth.

But this may be a case of saying one thing and feeling another. In truth, three-quarters of investors worldwide say they prefer safety over investment performance. Six in ten (58%) go so far as to say volatility undermines their savings and investment goals – which explains why, despite the potential opportunities, volatility ranks as the number one risk concern.

Recovery risk concerns
In looking at markets in 2021, volatility (40%) and a slow economic recovery (39%) are top of mind risk concerns for investors. Inflation (31%) and low interest rates (27%) also factor into their outlook. And after record public spending efforts to moderate the economic impact of Covid, investors worldwide seem to understand that somewhere down the road, somebody will have to pick up the tab; about one-quarter (23%) say they also see potential tax increases as a looming risk as well.

Just as the Covid experience differed widely from region to region, risk perceptions vary widely from country to country. Volatility (40%) may be the top risk concern overall, but more than half of investors in China (55%) are worried about the prospects of frothier markets and almost as many (51%) are worried about inflation. Meanwhile, concerns for a slow economic recovery run deepest in Singapore (54%) and Hong Kong (52%).

Taxes are of particular concern to investors in the US (35%), where the Biden administration is focusing on tax increases on the wealthiest individuals to fund investments in infrastructure and other policy initiatives. Investors in Argentina/Uruguay (36%), France (34%), Colombia/Peru (33%), and Italy (30%) also have taxes on their minds.

Another pressing risk factor for the US is tied to recent headlines like the partisan stalemate in Congress and meme stocks, with 28% worried about prospects for political dysfunction and another 26% concerned with market manipulation.

Top 5 investment concerns

While volatility and slow recovery top the global list of financial fears, investors are worried about different things from region to region.

Global

1 Volatility

2 Slow recovery

3 Inflation

4 Low rates

5 Tax increase

US

1. Volatility
2. Tax increase
3. Slow recovery
4. Inflation
5. Political dysfunction

France

1. Slow recovery
2. Volatility
3. Tax increase
4. Inflation
5. Low rates

Hong Kong

1. Volatility
2. Slow recovery
3. Inflation
4. Political dysfunction
5. Low rates

UK

1. Low rates
2. Slow recovery
3. Volatility
4. Inflation
5. Tax increase

Personal financial fears
Beyond the risk concerns, investors also share a wide range of financial fears. When asked to select their biggest fears, survey respondents put a large unexpected expense at the top of the list (35%). This sort of dreaded surprise was what worried investors most when asked in 2019, but the current environment has recast financial fears for many.

Taxes (27%) rank second for investor fears globally but top all fears for investors in France (46%), the US (41%), Colombia/Peru (39%), Italy (38%) and Spain (33%). Healthcare costs (27%) may rank number three globally, but investors in Chile (44%), Singapore (43%), Mexico (40%), Switzerland (32%) and Australia (31%) all make it their greatest fear.

35^%

Large unexpected expense

27^%

Taxes

27^%

Healthcare costs

26^%

Maintaining my
standard of living

25^%

Job security

While most regions were most concerned about large unexpected expenses, taxes topped the list in the US (41%) and France (46%).

The effects of Covid loom large in the financial outlook of many in Latin America. In Chile, where 65% of investors say they are stressed, investor fears look significantly different: Healthcare costs (44%), accumulating debt (42%), a large unexpected expense (40%), and not having enough money to save (39%) are their biggest concerns.

Overall, investors may say the right things about volatility and risk, but their concerns and fears show they are much more sensitive than they might actually believe, and that is just the first lesson they could take away from the past year.

The pandemic has been as much a stress test on personal financial plans as it was on the global economy. Even though most investors say they’ve not been directly affected by the financial squeeze that many have felt during the pandemic, those surveyed say there are clear take-aways from Covid.

Key financial lessons
When asked what they’ve learned, most point to fundamental personal finance issues that would help them be better prepared for a future crisis. More than four in ten (43%) say they learned the importance of keeping their spending in check. This lesson was felt most strongly by individuals in Latin America including those in Colombia/Peru (64%), Argentina/Uruguay (62%), Chile (58%) and Mexico (58%).

Along with managing their spending, three in ten say they also learned the importance of having emergency savings. This planning point, which goes hand in hand with the fear of facing a large unexpected expense, was felt most directly by investors in Thailand (55%), Colombia/Peru (53%) and Mexico (50%) – all countries where the number of individuals who reported losing household income during the pandemic was significantly higher than average.

But this lesson sticks with more than those who lost income. In fact, four out of ten surveyed in both Singapore and the US said they were more aware of the need for emergency savings. The number who lost income was lower than average in both countries [US (14%), Singapore (21%)].

Key investment lessons
Along with these essential planning issues, individuals also learned important investment lessons. Most frequently, investors cited the need to avoid emotional investment decisions (29%) as a key learning from the past year.

Given that the pandemic produced both the swiftest market downturn and the swiftest recovery on record, investors could have learned the lesson one of two ways: Those who panicked early and pulled assets may have paid the price by missing out on the double-digit returns, while those who stayed put may have been rewarded for their patience. With investors reporting average returns of 12.5% above inflation for 2020, it appears that many learned from positive reinforcement.

Investors also report the pandemic demonstrated the need to better understand risk in their portfolios (25%). Given their desire for safety and distaste for market turbulence, the sudden spikes in volatility seen in March of 2020 may have delivered a hands-on learning experience. These lessons resonated most strongly with investors in Singapore (41%), Taiwan (40%), China (36%), Thailand (35%) and Hong Kong (34%).

Personal Finance

43%

Keeping my spending in check

30%

Having an emergency savings account

23%

Having an estate plan
(e.g., life insurance, will, long-term care, etc.)

23%

Understanding the role I play in my household's entire financial picture

Investing

29%

Avoiding emotional investment decisions

25%

Understanding risk in my portfolio

24%

Rebalancing my portfolio

15%

Weighing the tax consequences of my investment decisions

One of the more somber reminders of the real cost of the pandemic is the 51% of investors in Mexico and 44% of investors in Colombia and Peru who said the experience demonstrated the importance of having an estate plan.

Adapting investment habits
Given their success in 2020, it’s no surprise that 40% say they’ve made no changes in their investment accounts as a result of Covid. But that also means a majority (60%) made some changes.

Millennials were the most likely group to adjust. In fact, 74% of this group reported making some change. As a group, they were more likely to increase their investments as a result of the pandemic (23% vs. 19% overall), step up their online trading activities (32% vs. 23% overall), and increase trading activities through their advisor (24% vs. 18% overall). Even as they increased trading, less than 10% (9% vs. 5% globally) said they opened up margin accounts that might fund these efforts.

The one big exception to this data is Millennials in the US, where the combination of easier access to trading with services like Robinhood and the wild rides of meme stocks like GameStop appears to have had an effect. More than four in ten (43%) Millennials in the US say they stepped up online trading; 31% said they traded more with their advisor. This group was nearly twice as likely as other US investors to open up a margin account (13% vs. 7%).

But not everything was rosy for this generation. Even though they were most likely to increase investments and trading activity, Millennials were also more likely to make withdrawals from savings and investment accounts (24% vs. 19%), a number that aligns with the 28% who said they lost household income and 12% who lost their job or business for at least part of the year as a result of Covid.

Coming out of the pandemic and into recovery, investors see big opportunities to grow their assets, and their optimism extends well beyond the reopening of economies around the world in 2021 to anticipate even greater results in the years ahead.

The challenge for many will be to ensure that they don’t let emotions, up or down, get the best of them. It will mean taking a hard look at the results they can realistically hope to achieve and rationalizing those expectations with genuine tolerance for risk, overcoming their fears, and ultimately making the critical lessons they’ve learned stick.

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