What is currently the most attractive investment opportunity in the eyes of U.S. investors? The latest UBS/Â鶹´«Ã½AV Index of Investor Optimism survey* asked investors to rate the relative attractiveness of six different asset classes. As it turns out, investors are most bullish in their outlook of the real estate market.
Fifty-four percent of investors feel that real estate investments (including homes, commercial property, and real estate investment trusts) are more attractive now than they were six months ago. Interestingly, opinions about real estate have changed little since 2002, and remain the most highly rated investment of those tested. When Â鶹´«Ã½AV posed this question to investors two years ago, 59% believed that real estate investments were more attractive than they had been six months before.
Stock Appeal
Stocks rank second of the six items tested with regard to investor perceptions of improved opportunity -- 4 in 10 (41%) believe that stocks are more attractive now than six months ago. Two years ago, while the recovery dawdled and investors had more reservations about the stock market, only 31% said that stocks had more appeal than they did six months before. So even as economic uncertainties continue to loom today, investors' optimism in stocks seems to be rising. Indeed, 49% of investors are currently optimistic about the stock market's performance over the next 12 months, compared with only 32% who were optimistic about it in July 2002.
CD or not CD?
Reflecting the reality of a low interest-rate environment and that the equity markets are now more appealing, investors are not particularly keen on keeping their money in CDs. Only 24% of investors say CDs are more attractive, while 40% of investors say CDs are less attractive now than they were six months ago. Bonds are not an investor favorite either, with 21% of investors rating them as more attractive than they were six months ago and 36% saying they are less attractive.
And even though gold and silver continue to attract speculators and investors alike, the shine may be wearing off. Twenty-five percent of investors feel gold is more attractive than it was six months ago (an equal percentage rate gold as less attractive), and just 13% of investors feel that silver is more attractive (32% find silver less attractive than it was six months ago).
Gentlemen Prefer Stocks
There are some differences in opinion on this question based on gender and investor affluence. Male investors are more optimistic about stocks than are their female counterparts. While 46% of men think stocks are more attractive now, just 34% of women say the same.
With regard to investable resources, "substantial" investors (those with investable assets of $100,000 or more) tend to view stocks as more attractive than do "average" investors (those with between $10,000 and $100,000 in investable assets).
Bottom Line
Among their many other disagreements, economists can't seem to agree on whether the recent run up in home prices represents an asset bubble in the making. Naysayers warn that low interest rates, combined with the desire for investment opportunities, have fueled an ill-advised real estate-buying spree, and that the bubble is bound to burst. If this is indeed the case, investors might need a wake-up call. Unfortunately, bubbles don't come with such a feature.
*Results for the Index of Investor Optimism -- U.S. are based on telephone interviews with a randomly selected U.S. sample of 802 adult investors, aged 18 and older, with at least $10,000 of investable assets, conducted July 1-18, 2004. For results based on this sample, one can say with 95% confidence that the maximum error attributable to sampling and other random effects is ±4 percentage points. In addition to sampling error, question wording and practical difficulties in conducting surveys can introduce error or bias into the findings of public opinion polls.
