Individual investors have plenty to be squeamish about in 2012, but according to a new survey by the Motley Fool stock advisory firm, they are most concerned about a dysfunctional Congress and how it may adversely affect the economy.
Nearly 45 percent of the 1,670 U.S. investors surveyed by the financial services company cited Capitol Hill gridlock as their number one economic concern for this year, topping concerns about the national debt and stubbornly high unemployment by 20 and 30-point margins.
The trend is consistent with what one top investment manager says he hears from his clients. “There may be tremendous opportunity out there in the market, but it falls on deaf ears because of the uncertainty investors see lawmakers projecting on to the investment landscape, again and again,” said David Joy, chief market strategist for Ameriprise Financial.
Joy says that while it’s reasonable for virtually any U.S. investor to feel rattled, this urge to retreat could end up hurting investors down the road if it makes them hyper-risk averse. “I expect you will see some ratcheting down of risk exposures, and more money sitting idle, even as compelling opportunities arise…I could see [congressional infighting] becoming increasingly problematic.”
To be sure, Congressional gridlock hasn’t had a major impact on investors’ portfolios for now. According to data from the Vanguard Group, one of the countries’ largest investment management companies, 98 percent of investors didn’t alter their retirement portfolios last August, when the market registered wild swings while President Obama and Republican congressional leaders wrangled over the debt ceiling. Although the White House and Congress put together a last minute agreement, the bitter political brinksmanship prompted Standard & Poor’s to downgrade the U.S. credit rating.
Another interesting poll finding: Although Americans have amped up their stakes in European debt markets over the past year, individual investors are not overly concerned about prospects of a European default.
In fact, the number of investors who ranked Europe on their list of economic worries in the Motley Fool survey was so negligible that the finding was left out of the report, said Morgan Housel, a macroeconomic analyst with Motley Fool who conducted the survey. “Our clients are not paying attention to what is going on in Europe and registering what that means, versus paying attention to the politics in Washington right now,” Housel said.
Investors might be wise to pay more attention to the debt crisis in Europe, he said, but instead they are more focused on the political mess in Washington and its potential impact on their finances. According to the Bureau of Economic Analysis, U.S investments in European stocks and other assets rose $135 billion in the third quarter of 2011 over the previous quarter. While congressional gridlock is on the minds of many investors, they many realize that unless lawmakers can overcome their differences, little will be done to address the nation’s long term deficit and economic problems. Marc “The deficit is a symptom and investors are trying to find the source of the disease,” said Marc Goldwein, policy director of the Committee for a Responsible Federal Budget.
