Business Columns & Blogs

Consumer confidence chewed up

It’s tough enough to get Americans to do things that require short-term sacrifice in return for long-term gain – eat right, exercise, change the oil in the car, turn off the TV and read a book every now and then.

But what if Americans perceive that the long-term returns don’t live up to the advertised benefits, and that following supposedly sage advice might actually leave them worse off?

We may already be finding out, to judge from a survey of financial advisers released last week by Tacoma-based (at least for the moment) Russell Investments.

According to a summary of the Financial Professional Outlook, the advisers surveyed believe at least one in three clients is at “significant risk of falling short of their financial goals without taking corrective action.”

The advisers offered a number of explanations for the potential shortfall: “clients are not willing to save enough” (24 percent), “don’t have enough money” (22 percent), “overall market risk” (20 percent), “too conservative with their portfolio” (17 percent), “tax implications” (6 percent) and “underperformance of a product” (3 percent)

The cooked spinach that Americans have been told to eat for years is saving and investing now for the long term, whether that distant horizon is a home purchase, college education for the kids or retirement.

Vats of ink have been spilled in spaces like this lamenting the paltry savings rate of Americans vs. other countries and the debt levels we’ve taken on (even though at times, such as with a recession looming, Americans have also been given the contradictory advice to get out there and spend to boost the economy).

Saving and investing aren’t necessarily synonymous. While you need to have saved something in order to invest it, the conventional wisdom has long been that Americans won’t accumulate the wealth they need to achieve those long-term goals without the kinds of returns investing can bring.

Which gets us to the big reason, left unaddressed in the Russell survey, that Americans aren’t participating in investing these days:

They don’t trust anybody or anything having to do with Wall Street.

That sentiment may be buried in some of the listed responses or in the catchall category of “other” (7 percent). But if the question had been posed much more bluntly, and the respondents (who were the advisers, not the investors themselves) had answered candidly, the answer might have revealed exactly why people aren’t willing to save enough, or why they don’t have enough money to invest.

If the lack of confidence in Wall Street, the economy, the regulators, the media, the experts, in anyone is the underlying reason, can you blame Americans for thinking that way? Twice in the past decade Americans have been burned by their investments, first in the dot-com boom-and-bust with its reliance on pro-forma, ginned-up funny-money accounting and lack of credible business models, followed by the more recent meltdown and its steady parade of revelations about clueless and malevolent behavior.

Scandals alone don’t make Americans queasy about investing; they’ve long held a jaundiced view of Wall Street behavior. But they were willing to tolerate a lot as long as the money was good. For years now, it hasn’t been. The market had a nice rebound last year? Oh goody. Take a look at a performance chart for the Russell 1000. All you’ve accomplished is to claw your way back to where you were in late 2008; the last year and a half didn’t happen.

Or for a really depressing walk down memory lane, extend the Russell 1000 chart back 15 years. Basically you’re where you were circa 1998. In other words, the last dozen years didn’t happen.

No wonder then that, given the money that has been evaporated, the average American investor is unlikely to have much confidence in assurances that “OK, this time we know what we’re doing.”

The issue of confidence has an interesting contrast in the banking sector where those who are saving have been stuffing money despite painfully low interest rates. Consumers may not be earning a lot of money but thanks to federal deposit insurance they’re largely protected from losing any. Not that they have any higher view of the banking sector’s financial acumen than their low regard for Wall Street, what with continuing bank failures.

Yet with two notable exceptions – the lines at IndyMac when that institution went down, and the deposit drain on Washington Mutual that prompted regulators to take it over – the safety of their money has been largely a non-issue with most Americans. Bank got seized? Ho hum, guess that means we’ll be getting a new checkbook cover.

The Russell report advises financial counselors and money managers to talk frankly with clients about making some tough decisions about their investments. But unless the investment industry is willing to provide bank-like deposit guarantees (the antithesis of the notion of investing) or there’s a miraculous and sudden rehabilitation in Wall Street’s reputation, clients may have already made a tough decision of their own: “No thanks, I’ll sit this one out.”

Bill Virgin’s column on business and economics appears Sunday in The News Tribune. He is editor and publisher of Washington Manufacturing Alert and Pacific Northwest Rail News. He can be reached at