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November 19, 2018

US investors conflicted by market volatility

Ten years after the financial meltdown, US investors are conflicted between trust and security and risk and return, according to a survey by Natixis Investment Managers.

Of investors polled, 71% said that they are financially secure while 82% said that they understand the investment risks in the existing environment. But 53% of investors said that market volatility could hamper their goals.

The results come from a survey of 750 US investors by CoreData Research February 2017 and 300 financial professionals in March 2018.

Natixis Investment Managers CEO for the US and Canada David Giunta said: “A decade of rising markets, low interest rates and subdued volatility may have given investors unreasonable expectations and a false sense of security.

“Our research suggests many investors’ instincts could undermine their financial success as volatility returns to the markets, but their continued trust in their financial advisors should help them remain disciplined as markets become more turbulent.”

Mismatched expectations of US investors

Americans currently expect annual returns of 9.8%, which is said to be 43% higher than what financial advisers say is realistic.

Investors who entered the market after the financial meltdown expect annual returns of 11.3% above inflation.

Despite high return expectations, investors’ risk tolerance was found to wane with 85% preferring safety over investment performance.

Besides, 78% of investors believed that their portfolio was properly diversified. However, 51% of investors said that they were unable to identify the majority of the underlying investments in funds they own.

The study also found investors understand risk only in theory. In response to the onslaught of the financial crisis, 31% sold some or all of their assets. However, 22% were found to later regret the decision.

Moreover, 11% of investors said that they need to avoid volatility altogether and 15% said that they do not understand the effects of volatility on their investment performance.

Even though benefitting from gains during the long bull market, only 32% of the investors believed the world today to be a more secure place than it was before the financial crisis.

Sixty five percent of investors said that it was now harder to get ahead in the financial market, while 48% said that they are now exposed to greater market risks today than before the financial crunch.

In case of making financial decisions, 70% were found to trust financial institutions and 75% trust financial advisers generally.

In case of choosing an investment, 88% of investors considered fees an important factor.

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