Hartford Funds today released new data exploring investor sentiment and understanding of elevated inflation and the role of the US Federal Reserve (“the Fed”), and how they impact their investment decisions. The data reveals that elevated inflation remains an area of concern for most investors (94%), but they are split on how this phenomenon and the Fed impact their investment decisions. The findings also show a generational divide on both subjects, especially as younger generations (ages 18 – 41) have yet to live through a period of elevated inflation, unlike older generations (ages 42 – 76).

Most Investors Concerned About the Longevity and Impact of Elevated Inflationary Environment

The majority of investors demonstrated an understanding of inflation, with three-quarters (75%) identifying the correct definition of the market phenomenon. Younger generations, however, struggled with correctly defining inflation compared to older generations (54% vs 86%), and worry more about the phenomenon impacting their day-to-day finances (78% vs. 71%).

The data suggests that these concerns around elevated inflation likely won’t subside in the near term, as 84% of investors believe elevated inflation will persist beyond the end of 2022. This is the case for 75% of younger investors and 88% of older generations. 49% of investors believe elevated inflation will last beyond 2023, younger investors being slightly more optimistic than older generations (41% vs 54%). 79% of investors express concern around their portfolio’s long-term performance to some extent, with elevated volatility in the stock market and elevated inflation being the two primary concerns (22% and 20%, respectively).

“With elevated inflation at levels not seen since 1982, it is not surprising to us that all investors are struggling to navigate the complexities of the current market environment,” says Joe Boyle, Fixed Income Product Manager at Hartford Funds. “During these uncertain and volatile times, it is important for investors to educate themselves on the nuances of current market dynamics and focus on the long term when evaluating their investment decisions.”

Fed’s Monetary Policy Ignored by Majority of Investors When Making Investment Decisions

When it comes to understanding the primary role of the Fed, the data showcases a similar generational disconnect between investors’ foundational knowledge and how it impacts their actual investment decisions. In fact, 66% of investors either incorrectly defined or admitted they do not know the primary role of the Fed. This lack of understanding is more prevalent when comparing younger and older generations (75% vs 61%).

Additionally, younger generations are much more likely to rely on the Fed’s monetary policy when making investment decisions compared to older generations (74% vs. 46%).

As for the Fed’s role in curbing inflation, more than half (56%) of investors believe that rising interest rates will have a ‘significant’ or ‘moderate’ impact on curbing inflation. Younger generations are more likely to believe this, compared to older generations (71% vs 47%). In fact, 35% of younger investors are more optimistic that rising interest rates will have a significant impact on curbing inflation, which is a 14% increase from the aggregate of all investors (21%). When asked about the number of expected rate hikes in 2022, investors generally believe that the Fed will raise interest rates two to three times in 2022 (49%), when markets are currently pricing in four to five.

The data also suggests that the number of rate hikes investors are expecting this year will impact where they invest. If their rate hike expectations are correct, 94% of younger investors expect to change their investment decisions in some form, while only 72% of older generations are expected to do the same. Younger generations are most likely to invest in stocks (47%) followed by real estate (38%) and cash (34%), while older generations are most likely to invest in stocks (27%) followed by commodities (22%) and bonds (20%).

“We encourage investors to think towards the long-term and incorporate multiple factors, including the Fed’s monetary policy decision, into their decision-making processes,” says Boyle. “The Fed’s monetary policy can potentially impact portfolios both in the short- and long-run. At Hartford Funds, we believe shareholders should work with their financial professional to actively evaluate their portfolios in respect to their individual situation including both short- and long-term goals.”

On March 10, Hartford Funds will be releasing a new episode of its Human-centric Investing Podcast featuring Jonathan Mackay, Head of Sales, US Intermediary Investment Strategists at Schroders, which will further delve into the survey findings and discuss what they mean for investors of all ages.

For more information on this survey and the ‘Human Centric Investing’ podcast, please visit hartfordfunds.com.

Methodology

The survey of 908 investors with at least $75,000 in investable assets was conducted online by Engine’s CARAVAN® between February 14 to February 16, 2022.