US investors are beginning to fall into two groups, one stuck at an impasse with competing desires for growth and stability, and the other at a turning point, ready to reset their expectations and approach to investing, according to findings of a survey published today by Natixis Global Asset Management.
Natixis Global Asset Management, chief executive officer in the Americas and Asia, John Hailer said: "Many investors have set aggressive investment targets, but don’t have a realistic way of reaching them. Something has to change. The markets have reached new heights and investors feel generally comfortable about portfolio performance. But without a plan that incorporates individual risk and personal benchmarks, the odds are diminished that investors will meet their goals."
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Natixis, which manages more than $899 billion in assets through its affiliates, surveyed 1,050 investors across the U.S. as part of a global survey of nearly 6,000 investors in 14 countries around the world. It found that while strengthening global markets have fueled a renewed and urgent focus on growth as an investment priority, many investors remain fearful of losses and lack direction about how to move forward.
According to the survey, Americans say they need average annual returns of 9.8 percent above inflation to meet their financial needs, including providing income in retirement, housing and healthcare expenses. "This is an ambitious goal that could drive investors to take on more risk than they can handle," said Hailer. With average yearly inflation of 4.2% since 1964, these investors would actually need to earn 14 percent to meet their needs, surpassing the 10% average annual gain of the Standard & Poor’s 500 ® Index over the past 50 years.
But, while seven in 10 (71%) investors say asset growth is increasingly a priority over principal protection, 56 percent say they are only willing to take minimal risk to achieve high returns. "This demonstrates a great opportunity for financial advisors and the industry to help educate investors on realistic expectations and strategies to reach their goals," said Hailer.
According to the survey, three-quarters (76%) of investors only own investments they understand well – yet just one-quarter feel their overall investment knowledge is very strong. And, only 12 percent have strong knowledge of investments not correlated to the broader market.
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By GlobalDataWhen they do make investment decisions, more than three-quarters (79%) of investors say they simply follow their gut instinct. "Fifty-percent have no clear investment goals and 54 percent have no financial plan, so it’s not surprising that when asked how they define investing success – some look at asset levels and others look at comfort level – rather than meeting long-term financial goals," said Hailer.
The two top indicators investors rely on to measure investment performance are (1) the current level of their total assets (50%) and (2) comfort level (49%) with long-term financial success cited only 37 percent of the time.
Market volatility has eroded confidence for nearly half of investors (49%), and six in 10 no longer believe traditional asset allocation strategies that rely solely on a mix of stocks and bonds are the best way to pursue returns.
"Investing today is complicated. And, there’s a lot of noise in the market," added Hailer. "It’s no wonder investors are conflicted. But, they’re beginning to understand that market indexes may not be the best benchmark for their personal success. They’re looking for a better strategy to help them stay invested for the long term."
In what could be a turning point in investor behavior, attitudes and expectations, Natixis found that 82 percent of investors say they would be willing to set a target for investment returns that is independent of overall market returns.
- Eighty-one percent of investors are aware they need to invest using their own goals.
- Eighty-four percent of investors say they would be happy to achieve their long-term investment goals, even if they underperformed the market in a given year. In fact, two-thirds (69%) would be happy to achieve 10 percent returns even if the overall market gained 25 percent.
Americans’ willingness to change their approach may be driven by growing awareness that they face increased risks of not having enough income to meet their needs in retirement. Their biggest concern is the uninsured cost of long-term care in old age, which 53 percent of investors identify as a top risk to their financial security in retirement; that’s an increase from 40 percent in Natixis’ 2013 survey of individual investors.
Given the increase in life expectancies in the U.S., investors may need income to fund more than two decades of retirement costs, and only 27 percent of investors are very confident their current investment strategy is on track to deliver stable income.
Asked where they would turn if their retirement funding fell short, 46 percent of Americans say they will continue to work and 31 percent would rely on support from family members. Only 19 percent expect to be able to rely on the government, a reflection that Americans are beginning to accept the reality that they will be responsible for financial security in retirement.
